Intellectual Property - Citizens Against Government Waste

Intellectual Property:
Making It Personal
By Thomas A. Schatz
and Deborah S. Collier
Citizens Against Government Waste
Citizens Against Government Waste (CAGW) is a private, nonprofit, nonpartisan
organization dedicated to educating the American public about waste, mismanagement, and
inefficiency in the federal government.
CAGW was founded in 1984 by J. Peter Grace and nationally-syndicated columnist Jack
Anderson to build public support for implementation of the Grace Commission
recommendations and other waste-cutting proposals. Since its inception, CAGW has been at the
forefront of the fight for efficiency, economy, and accountability in government.
CAGW has more than one million members and supporters nationwide. Since 1986,
CAGW and its members have helped save taxpayers more than $1.3 trillion. CAGW publishes
special reports, its official newspaper Government WasteWatch, and the monthly newsletter
WasteWatcher to scrutinize government waste and educate citizens on what they can do to stop
it. CAGW’s publications and experts are featured regularly in television, radio, print, and
Internet media.
CAGW is classified as a Section 501(c)(3) organization under the Internal Revenue Code
of 1954 and is recognized as a publicly-supported organization as described in Sections
509(a)(1) and 170(b)(A)(vi) of the code. Individuals, corporations, associations, and foundations
are eligible to support the work of CAGW through tax-deductible gifts.
Thomas A. Schatz, President
Deborah Collier, Director of Technology and Telecommunications Policy
Citizens Against Government Waste
1301 Pennsylvania Avenue, NW, Suite 1075
Washington, DC 20004
(202) 467-5300
www.cagw.org
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Table of Contents:
Chapter
Introduction
1.
2.
3.
4.
5.
6.
The Changing Face of Piracy
The Dangers of Counterfeit Drugs
Music and Movies and Torrents, Oh My
Trademarks: Iconic Icons
Patents: To Create; Perhaps to Use, Perhaps to License, Perhaps to Litigate
Electronics, Software, and National Security: Pulling the Plug on Phony Parts
Conclusion
About the Authors
End Notes
3
Introduction
Most Americans do not think much about how property rights affect them in their daily
lives. If they consider the subject at all, they are likely to be more aware of the monetary value of
private property than intellectual property (IP). People will protect their valuables at home and
work by locking their doors and installing security systems, and they usually have a good idea of
how much their business, home, car, and investments are worth.
But few people realize that nearly every product they use is the result of someone’s idea,
or IP; nor are they likely to know the value of IP to the economy. And it is even more unlikely
that they understand the impact of IP theft on either the creative process or the tens of millions of
ordinary Americans who participate in that process.
A Brief History of Intellectual Property Protection
During medieval times guilds, associations, or artisans were granted authority by the
government to control the regulation and conduct of various industries.1 In England, personal
property and IP were traditionally viewed as distinct subjects with different origins. Personal or
tangible property was viewed as “a creature of common law,” whereas copyrights and other IP
were considered “largely a creature of statute.”2
The 1623 Statute of Monopolies provided for the exclusive control over an invention for a
period of 14 years to the “true and first inventor.”3 The Statute of Anne in 1710 granted an initial
14-year protection period with a possible 14-year renewal for protection of IP rights.4
In the United States, following the Revolutionary War every state had its own patent law,
and every state except Delaware had its own copyright law.5 The protection and promotion of IP
was so important to the Founding Fathers that they included it in the General Welfare Clause,
Article 1, Section 8 of the U.S. Constitution:
To promote the Progress of Science and useful Arts, by securing for limited Times
to Authors and Inventors the exclusive Right to their respective Writings and
Discoveries.6
Unlike IP, personal property is protected under the Fourth and Fifth Amendments, not in
the Constitution itself. During the First Congress, H.R. 43, the Copyright Act of 1790, was enacted
and signed into law on May 31, 1790 by President George Washington. As one of the first laws
enacted by Congress, the legislation provided copyright protection for books, maps, and charts and
established both the U.S. Copyright Office and the U.S. Patent and Trademark Office (PTO).
These agencies were tasked with cataloguing, analyzing, and protecting IP rights.
Musical compositions were not mentioned in the text of the act and would not be expressly
covered by copyright until the Copyright Act of 1831. However, they were routinely registered
under the 1790 Act and categorized as “books.”7
Unlike the PTO, there is no “Office of Personal Property” or a “Department of Personal
Property.” In fact, Article 5 states that private property can be taken for public use with just
compensation. Although the government can exercise eminent domain over private property under
such circumstances, it has no similar right to take away IP.
The legal protection of IP has enormous value. It turns intangible assets into exclusive
property that can be traded in the marketplace. A March 2012 report by the U.S. Department of
Commerce Economics and Statistics Administration and the PTO found that direct employment
4
in the most IP-intensive industries in the U.S. accounted for 27.1 million jobs in 2010, and indirect
activities associated with those industries provided an additional 12.9 million jobs for a total of 40
million jobs, or 27.7 percent of all jobs in the economy.8
In a comparative study on the value of IP, economists Kevin A. Hassett and Robert J.
Shapiro estimated that “innovation in its various forms accounts for 30-40 percent of the gains in
growth and productivity by the American economy during the 20th century.”9 The study further
found that the value of IP in the U.S. was between $5 trillion and $5.5 trillion in 2005. 10 By
comparison, in 2010 that value had increased to between $8.1 trillion and $9.2 trillion, or the
equivalent of 55–62.5 percent of U.S. GDP.11
In 2010, the value of IP comprised approximately 80 percent of a company’s total assets
based on the Standard & Poor’s 500 Index.12 This compares to the 1975 value of intangible assets
comprising only 17 percent as IP, with the remaining 83 percent found in physical and financial
assets.13
Internationally, some governments have been developing policies that threaten IP. The
creative process will suffer as a result of such policies, because individuals and companies will not
be willing to spend as much time or money on new IP if they believe the fruits of their labor will
be taken away without sufficient – or any – compensation.
In a 2007 CAGW report entitled “Property Rights in the 21st Century: Don’t Steal This
Paper or My Ideas,” one of this report’s co-authors examined four “myths and reality” surrounding
the definition and use of IP. These premises hold true today.
Four Intellectual Property Myths
1.
Myth: The price of information and ideas should be zero because products should be priced
at marginal cost.
Reality: Economists reject marginal cost pricing because such policies destroy investment.
2. Myth: Intellectual property rights result in information and ideas being “locked down” by
their owners.
Reality: The creators of art, books, movies, and inventions want their creations to reach as
many people as possible, so long as they are compensated.
3. Myth: Intellectual property rights are monopolies that give their owners too much economic
power.
Reality: Patents or copyrights support competition by encouraging inventors and creators to
enter new markets; IP gives its owners no more economic power than any other asset.
4. Myth: Intellectual property rights benefit big firms at the expense of “the little guy.”
Reality: Patents are often the best protection that a small inventor has against large firms;
copyright benefits creative ventures of many sizes, from solo musicians to big studios.
5
Strong protection of IP provides real benefits. Consider the following American inventions
and whether they would have come about in a climate of weak IP protection:
The telegraph in 183514
The phonograph in 187715
The light bulb in 188016
Air conditioning in 190217
The television in 192718
The point contact transistor in 1947-194819
Marshmallow Peeps in 195220
Magnetic tape cartridges in 196421
The cell phone in 197322
The microprocessor in 197323
The value of these and future inventions relies on strong IP protection. This report will
review copyright, trademark, and patent issues, as well as ongoing threats to IP protections from
piracy, counterfeiting, and illegal sharing online.
Many individuals who buy a fake Gucci bag on the corner or illegally download a TV
show, movie, or music, share the view of Hana Beshera, one of the founders of NinjaVideo, who
served 16 months in prison for violating copyright laws. Even after she got out of jail, Beshera
still believed that “the movie business is so large that skimming a little off the top doesn’t hurt
anybody.”24 IP theft is wrong at every level; its impact affects everyone associated with the
creative process. Indeed, with more than 40 million Americans directly or indirectly working in
an IP-related industry, one of the victims of IP theft might well be personally known to the
perpetrator.
The importance of protecting IP rights cannot be overemphasized. The right to retain legal
possession of, and benefit financially from, IP is constantly being threatened. The intent of this
publication is to help educate the public about the value and importance of IP, the impact on
individuals and the economy from the theft of IP, and how IP helps innovation flourish and
economies around the world thrive.
6
Chapter 1 – The Changing Face of Piracy
“Pirate” conjures up swashbuckling raiders capturing merchant ships plying their trade on
the open seas. These individuals were infamous: Barbarossa, Black Bart, Blackbeard, Captain
Kidd, and of course, the Dread Pirate Roberts.
Their victims were not as well-known and often elicited little sympathy, particularly if they
were considered to be wealthy or otherwise elite.
Today’s pirates operate in the hidden sea of the Internet behind seemingly innocuous
websites and hack into computer systems to capture trade secrets in order to produce counterfeit
goods or make available stolen copyrighted material. They are mostly anonymous: unknown
individuals, organized criminals, and terrorists. On the other hand, some are well-known: China,
India, Russia, and Kim Dotcom.
Their victims are not so faceless. They are the creators, designers and innovators of
products and services used by billions of people every day. They are the local furniture maker and
wedding dress designer; they are also Ethan Allen and Vera Wang. They are the songwriter trying
to share new music and the budding moviemaker with an HD video camera; they are also Bob
Dylan and Disney.
With everyone now being only a mouse click away from the global marketplace, the
Internet has opened up the world to economic opportunity. But the information superhighway is
also wide open to criminals, who can now steal virtually what they used to have to take physically.
And most of what they want is IP. Essentially, everything that can be touched, smelled, listened
to, watched, worn or used can be copied or pirated from the original creator, illustrator, artist and
manufacturer.
In order to help reduce such theft, governments around the world need to do everything
possible to protect IP. The status of such efforts by the United States’ trading partners has been
included in the U.S. Trade Representative’s (USTR) “Special 301 Report” since 1989.25
The 2014 report listed 10 countries on the USTR’s Priority Watch List: Algeria, Argentina,
Chile, China, India, Indonesia, Pakistan, Russia, Thailand, and Venezuela. Another 27 trading
partners are on the USTR’s Watch List.26
The report highlighted positive steps in IP protection in countries such as Italy, Korea, and
the Philippines. These countries were removed from the watch list as a result of their efforts to
combat copyright piracy, increase enforcement activities, provide more patent transparency, and
adopt international treaties designed to protect the rights of authors, performers, and producers of
IP.
Korea’s progress toward protecting IP is notable, since it appeared on the USTR’s first
watch list in 1989. According to the 2014 report, Korea is now one of the top patent filers
internationally, with state-of-the-art standards for IP rights protection and enforcement.27
Unfortunately, far too many countries have failed to make such progress in protecting IP.
According to the World Intellectual Property Organization’s 2013 IP indicators report,
there were more than one million patents granted in 2012 and an estimated 8.66 million patents in
force worldwide.28 However, protecting patents, copyrights and trademarks from IP theft remains
a problem.
Every time something is designed, created, manufactured and sold in the United States and
globally, it has an intrinsic IP value. When that item has a patent, trademark or copyright and is
copied or remanufactured without the permission of the inventor, creator, or artist, it is stolen.
While most people don’t think about the illegal knockoffs they buy online or on the street corner
as stolen goods, these items are not innocuous.
7
The broad impact of IP theft was described by U.S. Immigration and Customs Enforcement
(ICE) Assistant Secretary John Morton, who said it “robs people of their innovation, jobs and tax
revenue that funds vital government services, … IP theft is a crime organized criminals engage in,
turning their profits toward other criminal activities, and IP theft creates safety risks for everyone
due to the proliferation of substandard goods, including counterfeit pharmaceuticals, aircraft parts
or daily consumables like toothpaste.”29
On the other side of this equation, the production and use of IP creates millions of jobs and
provides incentives for the development of new technology. According to the Global Intellectual
Property Center (GIPC), in 2012 IP was responsible for more than 55 million jobs across the
country, including California (7.3 million jobs), Texas (4.6 million jobs), Illinois (2.8 million jobs),
New York (2.7 million jobs), Ohio (2.6 million jobs), Pennsylvania (2.5 million jobs), and Florida
(2 million jobs).30
On January 29, 2014, GIPC released its second annual IP index, rating IP protection around
the world.31 GIPC ranked the countries through a point system based on six categories: patents (7
points), copyrights (6 points), trademarks (5 points), trade secrets and market access (2 points),
enforcement (6 points), and, membership and ratification of international treaties (4 points).32
The United States topped the list of countries with the most protection for IP with a score
of 28.52 out of 30, closely followed by Great Britain, France, and Singapore. Argentina, Indonesia,
Nigeria, Thailand, and Vietnam all had poor GIPC scores; Argentina, Indonesia and Thailand also
appear on the USTR’s Priority Watch List, and Vietnam appears on the USTR’s Watch
List. Bottoming out on the list for the second year in a row was India, with a ranking of 6.95 out
of 30.
It is little wonder that India again had the worst score. On December 29, 2013, The New
York Times reported on the ongoing struggle that drug manufacturers have protecting their patents
in India,33 which is one of the world’s leading producers of generic pharmaceuticals. Maintaining
that patented drugs are too expensive for people in developing countries,34 India has ruled invalid
patents protecting exclusive sales of Novartis’ Gleevec, Pfizer’s Sutent and Roche’s Tarceva. The
Indian government agreed that Bayer’s Nexavar patent was valid, but overrode the patent anyway
because a generic drug company promised to lower the price of the treatment.
A May 30, 2014 briefing on Capitol Hill, hosted by the Information Technology Innovation
Foundation (ITIF) and GIPC, highlighted the issues and challenges that India faces in moving
forward on IP protection following the installation of Narendra Modi as the country’s new Prime
Minister on May 26, 2014. GIPC Executive Vice President Mark Elliot stated that India’s low
rankings on protecting copyrights, patents, IP, trade secrets and market access, trademarks and
following international treaties contributed to its low score on the GIPC’s International IP Index.
Representative Ami Bera (D-Calif.) suggested that companies would like to invest in India, but
need to have knowledge of and predictability in how India engages in the protection of IP.
An April 2014 ITIF report criticized India’s use of “innovation mercantilist measures,”
which force companies to abide by rules that offer public procurement of information and
communication technology products, compulsory licensing of foreign bio-pharmaceutical IP, and
restrictions on market access and direct foreign investments in e-commerce, retail and financial
services.35 The report recommended changes to India’s IP laws that could help India achieve
improved economic stability and growth.36
Given India’s track record, the path to improved protection of IP rights will not be smooth
or easy. Moving forward, the U.S. government should continue to engage with all of its trading
partners, including India, to ensure that IP is respected and protected.
8
IP theft affects many other industries in addition to pharmaceuticals. An August 2007
Institute for Policy Innovation report estimated that millions of illegally downloaded songs have
cost the U.S. economy $12.5 billion, 70,000 lost jobs and $2 billion in lost wages, as well as $422
million in tax revenue ($291 million in personal income tax, and $131 million in lost corporate
income and production taxes).37 In a 2012 report on the impact of Internet piracy on sales and
revenues of copyright owners, Dr. Stan J. Liebowitz, Ashbel Smith Professor of Economics at the
University of Texas at Dallas stated, “On average, the findings for music are that the entire decline
in sales since 1999 is due to piracy, and these values tend to be in the vicinity of 50%-70% when
dollars are measured in inflation adjusted units.”38
In addition to the adverse financial consequences caused by counterfeit goods, they can
also cause physical harm. On May 13, 2013, an ABC News story about a raid on a Los Angeles
store selling counterfeit goods included an interview with Underwriters Laboratories, Inc. (UL) in
Northbrook, Illinois. UL experts demonstrated the hazards of counterfeit extension cords that
caught fire when in use, and suggested that counterfeit products that are used in everything from
toasters to the wall outlets in homes have the potential to also cause damage or injury.
On June 13, 2014, ABC’s “20/20” had a segment on counterfeit goods such as name brand
shampoos, soaps, and cosmetics sold at a steep discount, which have little similarity to the original
product other than packaging.39 Many of these counterfeits contain carcinogens, heavy metals and
other chemicals known to be harmful to humans. The products are sold at various retail
establishments nationwide as well as online, and are now in millions of homes across the country.40
The U.S. Immigration and Customs Enforcement Homeland Security Investigations (HSI)
directorate operates the National Intellectual Property Rights Coordination Center (IPR Center),
which includes 17 key federal agencies, Interpol, Europol and the governments of Canada and
Mexico. The IPR Center’s mission is to “ensure national security by protecting the public’s health
and safety, the U.S. economy, and its war fighters, and to stop predatory and unfair trade practices
that threaten the global economy.”41
IPR Center case studies included Operation Safe Summer, which discovered the
importation of counterfeit and faulty airbags; Project Copy Cat, which seized 70 domain names of
websites that mimicked real store websites to mislead consumers into purchasing counterfeit
goods; Cyber Monday 3, which targeted websites selling counterfeit products during the holiday
season; and Project TransAtlantic, a joint effort with Europol that led to the seizure of 182 domain
names of websites selling and distributing counterfeit goods.
Counterfeit sports apparel and souvenirs have also been the target of IPR Center activities.
Operation Red Zone led to the seizure of 196,333 sports-related items with a retail value of more
than $17.3 million, and Operation Team Player has resulted in the seizure of more than $37 million
in fake sports merchandise as well as 163 websites, along with the arrest of 70 individuals involved
in these schemes.42
The IPR Center’s ongoing operations target websites that distribute counterfeit products,
pirated movies and television content; both websites and smugglers who sell fake and adulterated
drugs; and the importation of counterfeit goods into the Department of Defense (DOD) and federal
government supply chain.
The Internet has widely changed the way consumers purchase goods and services, but this
process has also opened the door to increased fraud, counterfeiting and theft. Criminals have used
the Internet to sell counterfeit drugs, bootlegged videos and songs, counterfeit apparel, and fake
trademarked items.
9
One might wonder where the money from all of these stolen goods is going. More often
than not, it is being used to fund even more nefarious activities, including the illegal drug trade,
slave trade, child labor, organized crime and terrorism.43 In addition, covert activity to steal trade
secrets is being supported by nation-states in order to allow their domestic companies to develop
their own version of these products to sell at a cheaper price.
For example, on May 19, 2014, the Federal Bureau of Investigation (FBI) placed five
Chinese military officers on its most wanted list for cyber-espionage. Included in the charges are
“conspiring to commit computer fraud; accessing a computer without authorization for the purpose
of commercial advantage and private financial gain; damaging computers through the transmission
of code and commands; aggravated identity theft; economic espionage; and theft of trade
secrets.”44
In making the announcement, U.S. Attorney General Eric Holder stated that “the range of
trade secrets and other sensitive business information stolen in this case is significant and demands
an aggressive response.”45
During a trip in April 2014, to Los Angeles, California, one of this publication’s authors
noted that the streets of the garment district were lined with storefronts offering steep discounts on
designer clothing and handbags, and other shops offering low prices on various electronic goods.
Many of these prices just seemed too good to be true.
This experience called to mind an October 22, 2013 report on ABC’s “Nightline,” which
discussed seizures by the FBI and the Los Angeles Police Department of goods brought into the
U.S.46 Among the highlights of the story was the seizure of 16,000 fake Hermes handbags that
had a street value of $300,000. If these handbags had been genuine, they would have been worth
more than $210 million.
While U.S. government agencies, private-sector companies, trade associations, and
nonprofit organizations are engaged in the battle to protect IP, consumer awareness is also a key
component of these efforts.47 By paying attention to details, consumers can avoid purchasing items
that may be counterfeit or fake. If the price appears too good to be true, it probably is. If the
product is found in a location where one would not expect to find it, such as a Prada handbag sold
at a gas station, the authenticity should be in question. If the seller is not authorized to sell the
item, it is probably counterfeit. If the packaging is of poor quality or torn, or contains misspelled
words or other printing errors, the product is probably stolen.
Consumers shopping online should make certain that websites are authentic by checking
the fine print on product descriptions, reading the FAQ section, and reviewing the “Contact Us”
page. If typographical, grammatical or spelling errors appear, or incomplete information is
presented, chances are the website is a fake; they are not selling the real deal and are instead luring
consumers in to steal their credit card numbers and other information for more nefarious purposes.
Changes in technology have brought about new methods for pirates to steal from others.
Gone are the days of the swashbuckler, replaced by nebulous criminals who use subterfuge to
mislead and redirect consumers into purchasing stolen, fake or counterfeit goods. Domestic and
international law enforcement agencies are taking steps to stop these thieves, but consumers must
also be made aware of the threats posed to the economy and their personal safety when they
purchase these products, as well as how that money is being further misused.
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Chapter 2 – The Dangers of Counterfeit Drugs
Every day, doctors and health professionals prescribe millions of medications to help
individuals manage everything from the common cold to chronic conditions such as high blood
pressure, cancer, and diabetes. If these prescriptions are filled through the patients’ healthcare
plans and purchased at local pharmacies such as Rite Aid and Walgreens or through pharmacy
benefit managers such as CVS Caremark and Express Scripts, the drugs are presumed to be
approved as safe and effective by the U.S. Food and Drug Administration (FDA).
As healthcare costs escalate, however, alternatives to these legitimate sources of
pharmaceuticals are becoming more attractive. Taking advantage of this growing market, drug
“resellers” from around the world have opened up shop online. Many of their customers are
elderly, poor, or otherwise disadvantaged, who are trying to stretch their limited income and are
usually relatively new online shoppers. For example, they may be inclined to trust a Canadian
online pharmacy, but there is no way to determine the origin of the drugs being sold on that
website.
The counterfeit drug industry generates approximately $75 billion annually. 48 According
to the National Association of Boards of Pharmacy (NABP), counterfeit drugs comprise 1 to 2
percent of all drugs purchased in North America. On July 17, 2012, CNN issued the results of a
study detailing the rise of counterfeit drugs in the U.S.49 According to the study, even if only .001
percent of the more than 4 billion prescriptions filled each year in the U.S. were compromised,
that would mean 40,000 fake drugs were distributed in the pharmaceutical supply chain.50 And
even one brand of counterfeit drugs can be both deadly and costly: between 2007 and 2008, a
counterfeit version of the blood thinning drug Heparin entered the market, leading to 149 deaths
in the U.S.51 As a result of the distribution of the fake drug, 740 lawsuits were filed against
Heparin’s manufacturer, Baxter, which eventually sold the division that produced the medicine.52
While the dangers of counterfeit drugs are well-documented, the reasons for manufacturing
the fake pharmaceuticals are less obvious. Novartis Security Chief Andrew Jackson offered this
“cost-benefit analysis” of why someone would make counterfeit drugs:
Pretend that you graduated from the ‘University of Crime’ and you are considering
two career options. Which path would you follow? First, you can manufacture and
sell cocaine, and if you get caught, you may spend 20 years or more in jail. Your
second option is to manufacture and sell counterfeit pharmaceuticals. If you get
caught, in many jurisdictions, you’ll be sentenced to prison for two years and may
be back on the street in six months.53
The World Health Organization (WHO) first identified international sales of counterfeit
medicines as a problem in 1985.54 As consumers increasingly purchase products online, the
problem has become even more difficult to control.
The Federal Food, Cosmetic and Drug Act provides the following definition of a
counterfeit drug: “… a drug which, or the container or labeling of which, without authorization,
bears the trademark, trade name, or other identifying mark, imprint, or device, or any likeness
thereof, of a drug manufacturer, processor, packer, or distributor other than the person or persons
who in fact manufactured, processed, packed, or distributed such drug and which thereby falsely
purports or is represented to be the product of, or to have been packed or distributed by, such other
drug manufacturer, processor, packer, or distributor.”55 The WHO identifies a counterfeit drug as
“one which is deliberately and fraudulently mislabeled with respect to identity and/or source.
11
Counterfeiting can apply to both branded and generic products and counterfeit products may
include products with the correct ingredients or with the wrong ingredients, without active
ingredients, with insufficient active ingredients or with fake packaging.”56
The WHO noted that the lack of a universal definition of a counterfeit drug makes it
difficult to either consolidate information from various countries or determine the full extent of
the problem around the world.57
In the U.S., a counterfeit drug would likely be copying a drug that has been approved by
the FDA, since neither a brand name nor a generic pharmaceutical can be sold unless the agency
has found that it is safe and effective. In order to help consumers and healthcare professionals
purchase and use medications safely, the FDA provides resources to help make everyone aware of
the consequences of purchasing medicine from outside the U.S.58
In fact, the FDA has stated, “In most circumstances, it is illegal for individuals to import
drugs into the United States for personal use. This is because drugs from other countries that are
available for purchase by individuals often have not been approved by FDA for use and sale in the
United States.”59 On June 7, 2001, FDA Senior Associate Commissioner for Policy, Planning, and
Legislation William K. Hubbard testified that the importation of prescription drugs is a dangerous
practice. He noted that such drugs could be contaminated, subpotent, or superpotent, all of which
could cause harm to individuals.
In October 2003, the FDA’s Counterfeit Drug Task Force recommended that the FDA,
other government agencies, and the private sector take steps to minimize the risks to the public
from counterfeit drugs and biologics.60 The report noted that nearly 50 percent of the drugs in
China were counterfeit; up to 40 percent of the drugs in Argentina, Columbia, and Mexico might
be counterfeit; and about 10 percent of the drugs in Southeast Asia were counterfeit. 61 The task
force’s “multi-pronged” approach to combat counterfeit drugs includes using technology to
authenticate all drug products; updating state licensing standards to improve the U.S. drug
distribution system; creating a rapid alert and response system for counterfeit drugs; conducting
public awareness and education campaigns; and, coordinating anti-counterfeiting efforts with
foreign countries.
On August 19, 2014, the FDA updated its Import Alert on reimportation of all prescription
drugs for human use, noting that the law prohibits the reimportation of a prescription drug unless
it is being returned to its original manufacturer.62
There are other exemptions for the ban on the importation of drugs: treatment of a serious
condition for which effective treatment is not available in the U.S.; the drug is considered not to
represent an unreasonable risk; or, the individual importing the drug verifies in writing that it is
for his or her own personal use, and provides contact information for the doctor providing
treatment or shows the product is for the continuation of treatment begun in a foreign country.63
Should the importation of medication be allowed by the FDA, no more than a three-month supply
may be imported into the U.S.64
There is a good reason for the FDA’s concerns over the potential for imported or reimported drugs to be counterfeit and cause harm. In June 2005, a joint effort by the Ontario
Regional Coroner’s Office, Royal Canadian Mounted Police, and Health Canada found that a
Canadian pharmacist licensed by the Ontario College of Pharmacists had distributed a counterfeit
version of Norvasc, a well-known blood pressure medication, which turned out to be made from
talcum powder.65 Following this discovery, 11 reported deaths were examined to see if there was
a link to the fake drugs. In four of those deaths, the coroner was unable to rule out the counterfeit
medication as the cause of death.66
12
This is not an isolated incident. A September 2013 NABP report found that up to 77
percent of Viagra purchased online could be fake, with potentially dangerous side effects.67 The
pills could contain unknown ingredients such as blue printer ink, speed or amphetamine,
antibiotics, drywall or plaster, and other ingredients used to make the pill look and feel like the
real deal.68 Because counterfeit drugs are unregulated, the fake pills could also be superpotent,
increasing the risk of a heart attack.69 The NABP report found that only 257, or 3 percent of the
10,275 online prescription medication sites the organization reviewed could be considered
legitimate, while the other 97 percent were operating illegally or not following U.S. pharmacy
laws and standards.70
While the impact of adulterated ingredients contained in fake pharmaceuticals is somewhat
limited in the U.S. due to the relatively small percentage of sales of such drugs, elsewhere in the
world counterfeit drugs have had devastating consequences. Every year, a reported 100,000 deaths
occur in Africa that can be linked to the counterfeit drug trade. The International Policy Network
estimates that 700,000 deaths a year globally are caused by counterfeit malaria and tuberculosis
drugs.71
In addition to the problem of counterfeit and substandard drugs, some prominent U.S.
trading partners have little or no regard for patent protection. The official policy in these countries
permits domestic manufacturers to produce a pharmaceutical regardless of the existence of a patent
for that drug. The government claims that it has a “moral obligation to make cheaper, generic
drugs available to their populations,” which includes limiting or voiding patents.72
Perhaps the most frequent abuse of IP rights has occurred in India. Various branches of
the government have sanctioned the following incursions on drug patents between 2012 and 2013:
October 2012: India’s patent board revoked the patent for Pfizer’s cancer drug Sutent,
even though 90 other counties had approved a patent for the drug.
November 2012: The Delhi High Court ruled in favor of Cipla, a generic drug with the
same active ingredients as a patented Roche cancer drug.
April 2013: The Indian Supreme Court overruled the patent protecting a cancer
treatment developed by Novartis in favor of the production of generic drugs using the
same patented process.73
August 17, 2013: Roche announced it was dropping plans to patent its breast cancerfighting drug, Herceptin, in India after a health ministry committee urged the
government to issue a compulsory license to the company obligating them to allow an
Indian generic drug manufacturer to make a less expensive version of the drug.74
Other countries have also taken steps to restrict patent protection in order to produce
cheaper generic drugs for domestic use. Argentina and the Philippines have enacted strict limits
on patents, while “Brazil and Thailand have been issuing compulsory licenses for AIDS drugs for
years under multilateral agreements that allow such actions on public health grounds.” 75 In order
to help prevent more nations from voiding valid drug patents, the U.S. is continuing to seek greater
patent protection in trade agreements. As a result of the laws and court decisions in these countries,
the pharmaceutical industry is now fighting both official and illegal theft of IP.
On February 27, 2014, Government Accountability Office (GAO) Director of Health Care
Marcia Crosse testified before the House Energy and Commerce Subcommittee on Oversight and
Investigations that there are more than 36,000 rogue Internet pharmacies in operation, which
violate a variety of federal laws.76 According to Ms. Crosse, some of these websites seek to assure
consumers that their drugs are safe because they are coming from a “Canadian” company.
13
However, there is no assurance that the website is physically located in Canada and even less
assurance that the drugs are being sourced from that country rather than somewhere else around
the world.
FDA Deputy Commissioner for Global Regulatory Operations and Policy Howard
Sklamberg testified at the hearing about the agency’s efforts to combat the counterfeit drug trade.77
He said:
Those who manufacture and distribute counterfeit medical products not only
defraud patients and consumers, they also prevent patients from getting the safe,
effective drugs that can improve health, alleviate suffering, and possibly save their
lives. They put people at risk of harm from drugs that may contain too much or too
little active ingredient, the wrong active ingredient, or even toxic ingredients. But
even a counterfeit drug with no active ingredient could prove harmful to patients
who think they are taking a lifesaving or life-sustaining medication.78
Mr. Sklamberg noted that these drugs could contain toxic ingredients or be “processed
under poorly controlled and unsanitary conditions. Substandard drugs are also a major public
health concern, especially regarding infectious disease drugs, such as anti-HIV and anti-malarial
drugs.”79 He said that nearly 40 percent of the drugs taken by Americans are made outside of the
U.S., and “80 percent of manufacturing sites of active pharmaceutical ingredients (APIs) used in
drugs manufactured in the United States are located outside our borders—in more than 150
countries, many with less-sophisticated manufacturing and regulatory systems than our own.”80
While he assured the committee that U.S. laws and regulations have made the production
of counterfeit drugs in the U.S. nearly obsolete, there are serious challenges to assuring the security
of the complex global supply chain. To help protect that supply chain, the FDA uses its own law
enforcement authority and partners with both domestic and international law enforcement
agencies.
For example, in January 2014, following an investigation conducted by HSI and the FDA’s
Office of Criminal Investigations (OCI), a U.S. permanent resident living in Texas pleaded guilty
to conspiring to import counterfeit and misbranded drugs, including 3,200 counterfeit Viagra and
4,000 counterfeit Cialis pills that were sent to the individual from China.81 The drugs looked
authentic, but tests showed that the pills contained less than the required active ingredients.
In a second case, an investigation by the FBI and the Sacramento County Sheriff’s Hi-Tech
Crimes Task Force led to a California resident pleading guilty to conspiracy to traffic in counterfeit
pharmaceuticals.82 The defendant offered drugs for sale online using Craigslist and PennySaver,
along with text message blasts.
In March 2013, a Yorba Linda, California man was arrested by HSI and subsequently
charged with eight counts of selling counterfeit sexual dysfunction medicine on Craigslist. 83 He
advertised Cialis, Viagra, and Levitra for sale without a prescription from $6 to $10 each, claiming
that the drugs were “real.” However, a chemical analysis of some of the seized tablets showed
they contained active ingredients that were different than the ones used in genuine versions of the
pills.84
In an investigative piece on ABC’s “20/20” aired on June 13, 2014, reporters followed
federal, state, and local law enforcement officials as they arrested several individuals selling
counterfeit products, including Viagra.85 Tests showed that the pills contained only talcum powder
and road paint. The drugs had no medical value, but the seller had on hand $4,200 at the time of
14
his arrest. According to the report, most of the counterfeit drugs found by law enforcement
officials come from China, Latin America, and India, and are sold from people’s homes, cars, and
online.86
The “20/20” report showed how OCI had uncovered foreign, unapproved, and counterfeit
versions of the cancer treatment drug Avastin being sold in the U.S., leading to the conviction of
the Turkish nationals whose company supplied the drugs along with Canadian and American
wholesalers and middlemen.87 OCI has also arrested a number of health providers who purchased
unapproved foreign cancer drugs at a discount yet billed government health insurance programs at
the full price, including a California oncologist who purchased more than $3.4 million in foreign
unapproved cancer drugs; a physician in Tennessee who purchased more than $3 million in foreign
unapproved medications; seven Ohio physicians who purchased and administered more than $2.6
million in unapproved cancer medications; and, a Texas oncologist who administered more than
$1 million in unapproved drugs.88
Mr. Sklamberg also detailed the circuitous money trail involving a counterfeit drug
website. Billing itself as the “Pharmacy You Can Trust,” the website was hosted in New York,
but sold drugs that were manufactured in clandestine laboratories in China and shipped to U.S.based confederates known as “drop shippers.” They, in turn, sent packages to customers from a
U.S. address, giving the appearance that the drugs were dispensed from a U.S. pharmacy. The
OCI investigation showed that the payments were processed by a credit card processor in the
Netherlands, after which the funds were transferred to Cyprus, then to Hong Kong, and finally to
Israel. According to the OCI, from 2005 to 2007, the website operators processed more than $1.8
million in sales from 12,000 orders from their yacht, which was docked in Tel Aviv.89
The cost to bring a new drug to market can range from $242 million to $1.8 billion,
depending on the size of the drug manufacturer and the number of similar products being
developed at the same time.90 Among these financial costs are the lengthy process required to
perform the appropriate research, including product testing, as well as the time and financial
burden in applying for a patent and obtaining FDA approval for the use and marketing of any new
medication. This time-consuming process can take between 10 and 15 years before a drug is ready
for the market.91
The pharmaceutical and biopharmaceutical industries spend an average of 15 to 17 percent
of their revenues in research and development.92 Comparing the amount of time, energy, and
associated costs invested by pharmaceutical companies to bring a new drug to the market against
the counterfeit drug industry, which can garner approximately $75 billion in sales worldwide, 93
drug piracy has a substantial impact on healthcare innovation.
It is clear that protecting Americans from counterfeit drugs is a priority for law enforcement
officials. Many of the fake or counterfeit pharmaceuticals are processed in questionable facilities
and contain chemicals that may cause more harm than the disease they are supposed to prevent or
help manage. In addition to continued law enforcement efforts, the incidence of counterfeit drugs
entering the market can also be reduced by educating consumers, physicians, and pharmacists
about how to identify counterfeit or fake drugs as well as their health hazards. Pharmaceuticals
should always be used to enrich, rather than endanger, people’s lives.
15
Chapter 3 – Music and Movies and Torrents, Oh My
"Many worked very hard to bring this story to the big screen, and their work
should not be taken advantage of including the Godfather or and his many
contributions to society,” − Deanna Brown Thomas, daughter of the “Godfather
of Soul” James Brown, confirming she had heard of illegal copies of “Get On Up”
being found on the streets of Augusta, Georgia.94
On June 15, 2014, HBO aired the Season 4 finale of its hit series “Game of Thrones.”
Within 12 hours of its initial televised showing, the episode had “roughly” 1.5 million online
downloads worldwide, the equivalent of two petabytes of data.95 The problem with this surge of
downloads is that they were mostly pirated copies, meaning the vast majority of those who
downloaded the program never paid to watch the show.
Although the illegal copying and distribution of music, television shows, and movies has
been made easier with the advent of computer file sharing networks, the practice, at least for music,
dates back to cassette and 8-track tapes, which made duplication of recordings fairly easy. Albums
such as Kraftwerk’s 1974 album “Autobahn” included a “Buyers Bulletin,” warning consumers
that copying the recording was illegal. The document included a story about singer and songwriter
Jerry Lee Lewis smashing a rack of pirated tapes outside of a gas station. According to the bulletin,
bootlegging provided music pirates with $200 million annually.96
While illegal taping required playing an entire album (many of which were not in pristine
condition), the advent of the Internet increased both the speed and quality of pirated music. In
May 1999, Shawn Fanning and Sean Parker debuted Napster, a peer-to-peer file sharing network.97
Through the Napster website, users stored and retrieved songs in a central computer server, with
no payment to the copyright holders.
In December 1999, the Recording Industry Association of America (RIAA) found that
Napster users had figured out how to illegally share music files, and sued the company for
copyright infringement.98 On July 27, 2000, a federal judge in San Francisco shut Napster’s
website down, noting that the company had acknowledged that they encouraged “wholesale
infringement” against music copyrights.99 Napster got the message and now operates as a music
subscription service, paying copyright fees to artists, creators, and owners.100
However, other file sharing sites have evolved through which illegal downloads of music
and videos take place. First used in 2001, torrent technology provides an easy way for users to
trade and share large media files online, including software, music, movies, and digital books. 101
Taking small pieces of information (known as bits) from several different web sources, torrents
filter the content to remove any corrupted files and encourage users to share any complete files
they hold.102 Downloads on torrent file sharing networks can be performed at speeds of more than
1.5 megabits per second. The code for torrents is supposed to be open source, ad-free, and
adware/spyware-free.103
Torrent file sharing networks have thus enabled users to share both legally and illegally
obtained copyrighted material, including pirated movies, music and television programs. While
the technology may be neutral, a 2011 study by Envisional concluded that more than 99 percent
of the traffic on the global file sharing website BitTorrent contains infringing content.104 On
January 2, 2014, Wired announced the most pirated movies of 2013, including major blockbusters
such as “The Hobbit: An Unexpected Journey;” “The Hobbit;” “Django Unchained;” “Fast and
Furious;” “Silver Linings Playbook;” “Gangster Squad;” and, “Now You See Me.” 105 “The
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Hobbit: An Unexpected Journey” topped Wired’s list, with an estimated 8.4 million downloads
via BitTorrent.106
Speaking about the effects of pirating videos on the movie industry, Actress Chloe Moretz,
who played the teenage version of Dirty Harry in the movie series “Kick-Ass” and “Kick-Ass 2,”
stated:
Sadly, I think I’m done with the character. Hit-Girl was a very cool character, but
I don’t think there will be any more movies. You make these movies for the
fanboys, but nowadays everyone seems to pirate them rather than watch them in
the movie theatre. KICK-ASS 2 was one of the number one pirated movies of the
year, but that doesn’t help us because we need box office figures. We need to prove
to the distributors that we can make money from a third and fourth movie – but
because it didn’t do so well, we can’t make another one. If you want more than one
movie, everyone has to go and see movies at the cinema. It’s all about the numbers
in the theatre.107
A March 2013 University of Lund study reviewed one of the global file sharing sites, Pirate
Bay, to determine who was involved in pirating various types of media, including music, movies,
TV shows, sports material, games and software, e-books, and pornography. The study found that
93.8 percent of the 75,616 file sharers who responded were male, with almost half of the
respondents between the ages of 18-24.108 The study also found that music files were the most
prevalent with 46,554 files shared, despite the availability of legal streaming solutions.109 As to
why more males than females share files, an August 5, 2014 editorial in TechCentral surmised that
women are more risk-averse than men when it comes to pirating files, even though music pirating
is a low-risk activity with little chance that those sharing files will be prosecuted.110
On March 10, 2012, Rick Carnes told the Music Technology Policy blog:
[As] President of the Songwriters Guild of America … if I am supposed to
be getting ‘untold riches’ someone forgot to tell me! The mission statement of the
SGA is two words ‘Protect Songwriters.’ That lack of specificity has forced me to
show up in all kinds of places I never thought I would be! I was the lead witness
in the latest Copyright Rate Board hearing. I have testified on behalf of songwriters
in both the Senate and the House of Representatives on many issues concerning
song writers rights, and I have spent the last ten years flying all over the country
talking to people about the harm that is being done to American music by the
widespread theft of songs on the internet by a mob of anonymous looters.111
Musician David Lowery (of Cracker and Camper Van Beethoven fame) explained the
musician’s position when he responded to a June 16, 2012 letter posted by Emily White at National
Public Radio (NPR):
The fundamental shift in principals [sic] and morality is about who gets to
control and exploit the work of an [sic] artists. The accepted norm for hundreds
[sic] of years of western civilization is the artist exclusively has the right to exploit
and control his/her work for a period of time. (Since the works that are [sic] almost
invariably the subject of these discussions are popular culture of one type or
17
another, the duration of the copyright term is pretty much irrelevant for an ethical
discussion.) By allowing the artist to treat his/her work as actual property, the artist
can decide how to monetize his or her work. This system has worked very well for
fans and artists. Now we are being asked to undo this not because we think this is
a bad or unfair way to compensate artists but simply because it is technologically
possible for corporations or individuals to exploit artists work without their
permission on a massive scale and globally. We are being asked to continue to let
these companies violate the law without being punished or prosecuted. We are
being asked to change our morality and principals [sic] to match what I think are
immoral and unethical business models.112
During a March 2, 2011 hearing before the office of the U.S. Trade Representative, Michael
Schlesinger, chief counsel of the International Intellectual Property Alliance, testified that 90
percent of newly-released movies pirated by thieves are stolen in a movie theater with a digital
recording device that takes the image and/or sound off the screen.113 Movies are also pirated before
they appear in theaters. In July 2014, a DVD quality copy of “The Expendables 3” appeared online
and was downloaded millions of times before a single ticket was sold at theaters in September.
The movie then flopped at the box office.114 On average, pre-release piracy cuts box office
revenues by 19 percent compared to piracy that occurs after a movie is released in theaters.115
Unfortunately, the pirate’s gain is the creative and financial loss of those individuals who
make music, films, and television programs. For example, fewer new artists are likely to become
successful because they will not be able to make even a basic living from the intellectual property
they have produced. In a September 4, 2014 interview in Esquire, the legendary Gene Simmons
of KISS spoke about the demise of rock and the challenges facing new musicians:116
The masses do not recognize file-sharing and downloading as stealing
because there’s a copy left behind for you – it’s not that copy that’s the problem,
it’s the other one that someone received but didn’t pay for. The problem is that
nobody will pay you for the 10,000 hours you put in to create what you created. I
can only imagine the frustration of all that work, and having no one value it enough
to pay you for it.
It’s very sad for new bands. My heart goes out to them. They just don’t
have a chance. If you play guitar, it’s almost impossible. You’re better off not
even learning how to play guitar or write songs, and just singing in the shower and
auditioning for The X Factor. And I’m not slamming The X Factor, or even pop
singers. But where’s Bob Dylan? Where’s the next Beatles? Where are the
songwriters? Where are the creators? Many of them now have to work behind the
scenes to prop up pop acts and write their stuff for them.117
The creative writing of music that Simmons spoke about in his interview is protected by
U.S. copyright law, which is based on the Constitutional protection for intellectual property. In
1897, Congress founded the U.S. Copyright Office (USCO) as a department within the Library of
Congress, in order to provide for a centralized licensing process for creative works found in
literature, drama, music, and art.118 The USCO maintains the registration of “copyright claims in
books, music, movies, software, photographs, and other works of authorship. In fiscal year 2011,
the USCO processed more than 700,000 registration claims.”119
18
Authors of original creative work eligible for copyright are not required to register their
work; it is copyright protected from the moment of creation. However, the USCO recommends
registering works in order to have factual documentation of a copyright on the public record, a
certificate of registration, and eligibility for statutory damages and attorney fees in the event of
litigation over the work. If registration occurs within five years of publication, it is considered
prima facie evidence of the copyright.120
Some of the creative works that are not protected by copyright include an individual recipe
or listing of ingredients; names, titles, slogans, or logos which may be protected under trademark
law; and “ideas, concepts, systems, or methods of doing something.” 121
Copyright infringement, which is the legal term for stealing a copyrighted work, is subject
to both civil and criminal penalties. Civil penalties include injunctions, impoundment and
disposition of infringing items, damages and lost profits, and attorney’s fees. Criminal cases can
be brought against anyone who makes a fraudulent copyright claim or uses copyrighted material
for commercial or private financial gain. Copyright infringement affects all sizes and kinds of
copyright holders, from large record companies to budding artists and major movie studios to
novice filmmakers. In fact, despite the (false) impression that theft of copyrighted material hurts
only the big movie studios that can “afford” the cost, many movies are produced by individuals or
small independent studios running on a shoestring budget. In 2010, several independent
filmmakers cried foul when their movies were posted online, and filed lawsuits against thousands
of individuals who were illegally distributing their videos over the Internet.122 These filmmakers,
whose profit margins are typically very thin, remain concerned that illegal file sharing will drive
them out of business.
For example, in the spring of 2010, school teacher Ellen Seidler released the independently
produced film “And Then Came Lola.”123 She and her co-producers used $250,000 of their own
money and paid for the film through personal loans, and credit cards.124 Unfortunately, shortly
after the movie’s release, unauthorized copies of the film began to spread on the Internet, landing
on websites specializing in pirated movies and TV shows.
The companies and organizations hosting pirated versions of the films on their websites
care little about the impact of their illegal activities on filmmakers and songwriters. They seem to
believe that the copyright laws are free to be broken and everyone should be able to share copies
of songs, television shows, and movies.125 And, as evidenced by the email string that Ms. Seidler
shared with NPR, many of those infringing upon copyrighted movies and television shows are
under the mistaken belief that all movies are produced by large companies that have an army of
lawyers at the ready to kill their “business.”126
The NPR blog stated:
Seidler was attempting to get the attention of whoever was running Pirate
Bay at the time, and another site that connected to them called
novamov.com. She never got through to Pirate Bay or Novamov directly.
But she did reach Sven Olaf Kamphius, who runs Cyberbunker.com.
It’s a web hosting service inside a former NATO bunker in the Netherlands
that was hosting Pirate Bay and several similar websites. Seidler’s legal
notice to Novamov to take down her copyrighted film reached Kamphius
and he responded.
19
Kamphuis’s e-mail comes out strongly against any kind of copyright
protection. He dismissed Seidler’s references to United States copyright law
by saying:
... the laws of that retarded ex-colony cannot be enforced here, thank
god;).
Seidler tried to explain that she doesn’t have a battalion of high-paid
lawyers helping her fight copyright violations:
I am an independent filmmaker who has put her life savings into a
project and now see it uploaded illegally on the Web before the
DVD is even released.
But Kamphuis repsonded [sic] as if she was a lawyer representing a large
client:
i'd [sic] suggest your clients just fix their own business model and
find a way to make money on their productions which doesn't
involve bugging everyone else to get other people to remove stuff
for them.
You, nor your clients, pay us for our time, and our time is worth
more than lousy entertainment anyway.
Kamphuis actually threatened Seidler with legal action for ‘spamming’ him:
Simular [sic] organisations like yours try to infringe on OUR rights
by wasting our time (yes, immunity from liability also includes not
having to waste my man hours or the ones of my attorneys on this
without financial compensation, now where do we send the bill for
answering this email ? ;)
Should there be any further questions, I'm quite sure I can get our
shiney [sic] attorney firm, to make things clear to you, like they are
doing against some other movie firms at this moment already (Don't
you worry about that ;)
It sounds as he thinks he is addressing a big Hollywood operation, not an
independent artist.127
In 2012, another independent filmmaker, Tom Lowe, tried a different approach to draw
individuals away from pirating sites that were hosting counterfeit copies of his movie,
“TimeScapes.” He posted a note on the websites asking anyone uploading the film to consider
purchasing a copy of the movie from his website, or from the iTunes store, so that he could recover
the money he invested in producing the film.128 As of the date of publication of this report,
“TimeScapes” is still posted on Pirate Bay’s website.
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The New York Times reported on September 27, 2014 that according to Tru Optik, a media
analytics company, “nearly 10 billion movies, television shows and other files, including games
and pornography, were downloaded globally in the second quarter of 2014.”129 The company
estimates that there are about 400 million illegal downloads monthly just in the United States.
According to a July 17, 2014 article in The Guardian, almost 30 percent of individuals in
Great Britain now watch movies illegally online or purchase counterfeit DVDs.130 These thefts
have cost the audiovisual industry in the UK about £500 million a year (the equivalent of more
than $855 million).131 A study conducted by the University of Portsmouth found that, on average,
individuals involved in illegally downloading movies and music had downloaded around 2,900
music files, and 90 movie files.132
According to Tru Optik’s “Digital Media Unmonetized Demand and Peer-to-Peer File
Sharing Report … there were 2 billion TV show downloads and 2.2 billion movie downloads
worldwide in the first half of 2014 from peer-to-peer sites.”133 The company estimates that these
illegal activities represent more than “$12.5B in ‘unmonetized demand.’”134
The impact of the theft of IP on individual creators or smaller companies is relatively easy
for them to calculate. However, the “rich” movie studios, “major” record producers, and
“profitable” networks that are viewed by some as “victimless” entities are only part of the
economic infrastructure of the creative process. There are thousands of individuals involved
behind the scenes whose earnings are far from extravagant and who are disproportionately affected
by piracy.135
For example, the film industry spends tens of millions of dollars across the country, filming
movies in locations far removed from Hollywood. In 1978, eastern central Ohio was abuzz with
the news that a film would be produced by 20th Century Fox in Fairfield, Licking and Perry
Counties.136 A rural area of farms, coal mines, and small pottery and glass factories, the region
that had previously hosted filmmakers from “Green Grass of Wyoming” (1948) found itself at the
hub of “Brubaker,” starring Robert Redford. The producers used more than 300 local extras for
filming at the Junction City Treatment Center in Perry County.137 Many more films have been
produced around Ohio since then, including “Amish Ice” (2013); “Bad Grandpa” (2013); “The
Christmas Spirit” (2013); “Fear Clinic” (2014); “Love Finds You in Sugarcreek” (2014); “Miss
Meadows” (2014); “The Tribunal” (2014); “The Do Over” (2014); “Jenny’s Wedding” (2014);
“Captain America: The Winter Soldier” (2014); and, “Draft Day” (2014).138
A 2013 study by Film L.A. Inc. found that the top five locations for filming movies and
television shows were Louisiana, Canada, California, the United Kingdom, and Georgia; the
average production budget for these films is around $71 million.139 The study found that nearly
20 different states and foreign countries were used in film production, with 65 percent of those
films being produced in the U.S.140 In 2012, movie and TV producers spent $717 million filming
in the state of Louisiana.141
States are well aware of and welcome the positive impact of film and television
production. In an August 5, 2014 press release, Georgia Governor Nathan Deal said that the
industry has created jobs, revitalized communities, and increased tourism in the state. There were
158 feature film and television productions shot in Georgia in fiscal year 2014, which generated
an economic impact of $5.1 billion. The press release stated that according to the Motion Picture
Association of America (MPAA), the industry is responsible for more than 77,900 direct and
indirect jobs and $3.8 billion in wages in Georgia. In 2013, MPAA member companies paid $696
million to 4,066 local food service, lodging, real estate and technology businesses.142
21
For the most part, the money spent in these local vicinities stays local, providing an
important source of revenue for cities and towns, regardless of the financial success of the movie
or TV show. However, piracy eats into the profits of both large media companies and small
independent production companies alike, which leads to the production of fewer movies and TV
shows. IP theft, therefore, has more widespread consequences than most people, particularly the
pirates, imagine.
While movies generally provide a one-time infusion into the local economy, television
series that are renewed for several years have a long-term impact on the communities in which
they are filmed. Every member of the production team benefits when the program is renewed and
suffers when it is cancelled. Since the decision to renew a program is based on paid viewership,
illegal downloads cannot be considered to assess the market value of a program.
For example, Netflix’ “The Killing” was renewed twice after fans legally downloaded the
program in sufficient numbers to keep it on the air. One of the show’s producers, Dawn Prestwich,
wrote that “Networks rely heavily on that type of honest feedback from the audience, in order to
tailor their programming. In short: if you don’t buy it, they don’t make it.”143 Prestwich noted
that the two extra seasons “provided hundreds of jobs, paid for people’s health insurance and
pensions, and provided eighteen more hours of creative content.”144 Prestwich spoke for all TV
production teams when she added that strong, legal, paid support for programs “not only helps me
as a writer, it leads to further investment in the shows audiences like.”145
In addition to BitTorrent and Pirate Bay, massive online theft is being perpetrated by
CiNEDUB and Kim Dot Com’s file sharing network, megaupload.com.146 Even though Denmark,
the Netherlands, and the United Kingdom have ordered Internet service providers (ISPs) to block
Pirate Bay’s website due to copyright violations, the number of visitors to its website has doubled
since the bans were instituted in 2011.147
Even YouTube has had illegal movies uploaded to its network, although Google,
YouTube’s parent company, claims that it makes every effort to remove illegal content as soon as
it is notified of copyright violations.148 For those that are not taken down, illegally distributed
copyrighted material now appears with paid ads, making the site appear legitimate.149
Music and movie companies are taking several steps to combat illegal file sharing. Music
companies are monitoring file sharing sites like Ares, BitTorrent, and LimeWire and issuing
takedown notices to ISPs when they detect any illegal activity.150 Movie companies are developing
anti-piracy technology that imbeds graphic designs into the movies that can only be viewed with
a camcorder recording of the movie151 and audio watermarks.152 Even as these efforts move
forward, video pirates have become more tech savvy as well, imbedding videos into still pictures
on file sharing sites in order to thwart enforcement efforts.153
Both industries are trying to reduce traffic on illegal file sharing sites by making consumers
aware that content is widely available through legitimate online distribution platforms. MPAA’s
wheretowatch.com website lists more than 100 legal online distribution outlets for movies and TV
shows.154 RIAA’s whymusicmatters.com website details more than 70 authentic sources of online
music.155
In addition, several laws have been enacted to protect copyrighted material. The No
Electronic Theft (NET) Act of 1997 made it illegal to distribute unlicensed copies of music CDs,
films, DVDs, and other copyrighted digital media regardless of whether money was
exchanged.156 The Digital Millennium Copyright Act (DMCA) of 1998 gave copyright owners
the ability to remove infringing content by sending a takedown notice to online providers.157 The
22
providers were granted a broad safe harbor from prosecution if they promptly responded to the
notice.158
However, takedown notices have not functioned as intended. When infringing content is
removed, it is usually instantly reposted, requiring rights holders to spend an enormous amount of
time and money repeating the process over and over again. On December 5, 2013, the Center for
the Protection of Intellectual Property released a report by Professor Bruce Boyden of Marquette
University that found copyright owners were sending than 6.5 million takedown notices each
month for content that appeared on more than 30,000 websites. Between March and August 2013,
the six MPAA member companies alone sent 25.3 million takedown notices combined to search
engines and site operators.159 In January 2014, RIAA announced that the recording industry had
sent its 100 millionth takedown notice to Google.160
While the massive number of notices is indicative of an ongoing problem for every content
creator, sending notices is a far greater burden for individuals than large companies. On March
13, 2014, three-time Grammy Award-winning composer, conductor, and producer Maria
Schneider told the House Judiciary Subcommittee on Courts, Intellectual Property and the Internet
that she spends more time issuing takedown notices than creating new music. Schneider suggested
that content creators should be allowed to stop the uploading before infringement takes place and
that takedown should mean what it says:161
I’m now struggling against endless Internet sites offering my music illegally. After
I released my most recent album, Winter Morning Walks, I soon found it on
numerous file sharing websites. Please understand, I’m an independent artist, and
I put $200,000 of my own savings on the line and years of work for this release, so
you can imagine my devastation. Taking my music down from these sites is a
frustrating and depressing process. The DMCA makes it my responsibility to police
the entire Internet on a daily basis. As fast as I take my music down, it reappears
again on the same site–an endless whac-a-mole game.162
While the DMCA may not be as effective as it could be, law enforcement agencies are
having some success in fighting piracy. On April 26, 2012, ICE announced that it had seized more
than 70,000 pirated copies of music and movies in Fresno, California, valued at more than
$900,000.163 In commenting on the seizure, HSI Special Agent Clark Settles stated, “Commercial
piracy and product counterfeiting undermine the U.S. economy, rob Americans of jobs, stifle
American innovation and promote other types of crime. Intellectual property theft amounts to
economic sabotage, which is why HSI will continue to aggressively pursue product counterfeiters
and those who sell counterfeit products.”164
On June 25, 2014, American Society of Composers, Authors and Publishers (ASCAP)
President Paul Williams told the House Judiciary Committee that the U.S. Copyright Act fails to
meet marketplace challenges for songwriters, creators, and performers of music who are
increasingly faced with new transformative technologies that include iTunes Radio, Pandora, and
Spotify.165 ASCAP and its counterpart, Broadcast Music Inc. (BMI), use a collective licensing
model for businesses seeking to perform copyrighted music. Williams stated that he believes this
licensing model is the most effective, efficient and compelling model to serve the needs of music
creators, businesses that perform music, and listeners everywhere.166
In his testimony before a February 12, 2011 Senate Judiciary Committee hearing on
“Targeting Websites Dedicated to Stealing American Intellectual Property,” ITIF Senior Analyst
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Daniel Castro stated, “Online piracy harms the artists, both the famous and struggling, who create
content, as well as the technicians, sound engineers, editors, set designers, software and game
programmers who produce it. Piracy ultimately also hurts law-abiding consumers who must pay
higher prices for content, enjoy less content or relatively lower quality content, or pay higher prices
for Internet access to compensate for the costs of piracy.”167
It should not matter whether a movie is produced by a major film studio or by a small
independent filmmaker; or if a song is distributed by a large recording label or independently
distributed by a budding young artist: IP is being stolen and widely distributed without any
compensation returning to the creators and without their consent. Until it is reined in, this
industrial-scale theft will continue to rob the U.S. economy and consumers of jobs, investment,
innovation, and creativity.
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Chapter 4: Trademarks: Iconic Icons
In 1886, Coca-Cola sold for five cents a glass as a fountain beverage. In 1894, Joseph A.
Bidenharn, a Vicksburg, Mississippi, candy store owner, began bottling and selling the beverage
in a common glass bottle.168 In 1916, after receiving ideas from various glassmakers, Coca-Cola
Company selected a contoured design from the Root Glass Company of Terre Haute, Indiana, as
its specific packaging in order to prevent its product from being confused with other glass-bottled
sodas on the market. This classic bottle design with its scripted name was granted trademark status
by the PTO, and is now one of the most recognizable brands around the world.169
The global economy has created the opportunity for many brand name and trademarked
products to become well-known across international boundaries, including apparel, automobiles,
beverages, clothing, household cleaners, fast food chains, liquor, and tobacco. Companies spend
hundreds of millions of dollars on advertising and marketing, hoping that their brands become
iconic household names.
When brands become widely successful and well-recognized, consumers seek out them
out. Such highly-visible trademarks span language barriers and lifestyles. The value of individual
branding can be seen in the reverse side of the equation, when protestors in other countries attack
symbols and facilities of U.S.-based companies to object to certain policies or practices. In such
cases, the company more or less is the country.
According to the PTO, a trademark is a “word, name, symbol, or device that is used in
trade with goods to indicate the source of the goods and to distinguish them from the goods of
others. … Trademarks are used to identify goods that are sold or otherwise transported or
distributed through interstate commerce. Service marks serve the same purposes as trademarks
but identify services or intangible activities that are performed by one person for the benefit of
someone else either for pay or otherwise.”170
Inventors, creators, and innovators file trademark and service mark applications with the
PTO to protect their IP and business identities.171 The registered symbols, words, or packaging
can only be used with the trademark owner’s permission or license. For instance, CAGW’s
trademarked logo on the cover of this report can only be used by CAGW or those authorized by
CAGW.
Counterfeiters are well aware of the value of a familiar trademark. They copy the
packaging on products ranging from toothpaste to deodorant to tennis shoes in an effort to cash in
on the market. Other frequently-counterfeited items include batteries, extension cords, perfume,
shampoo, and toys.172
The products may look the same, but they are certainly not the same. For example, on June
14, 2007, the FDA announced a recall of counterfeit Colgate toothpaste that had been imported
from South Africa and sold in discount stores in Maryland, New Jersey, New York, and
Pennsylvania.173 The 5-ounce tubes were found to contain antifreeze. Even though ColgatePalmolive did not import toothpaste from anywhere in Africa, the counterfeiters might have gotten
away with their scheme had the product not been tainted.
In January, 2014, firefighters followed up on an April 2013 fire at a manufacturing facility
in Valley Stream, N.Y. They discovered a number of suspicious-looking goods and contacted the
FDA. Investigators determined that the products, including Chap Stick, Johnson’s Baby Oil,
Vaseline, and Vicks VapoRub, were indeed counterfeit. The facility was one of five in Nassau
County being used to make these goods.174 Four tractor-trailers were required to haul off the
millions of dollars’ worth of fake products. The operation was described as the largest of its kind
in U.S. history.175
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The beauty product bust is one of many efforts being made by law enforcement officials
against counterfeit products. In 2012, ICE seized 22,848 shipments of counterfeit goods worth
$1.26 billion, which kept them from reaching merchants and consumers.176
In a coordinated effort between the National Football League (NFL) and ICE officials,
Operation Team Player seized $37.8 million in fake Super Bowl merchandising and tickets during
the 2013-14 football season. The total was more than the previous six Super Bowl seasons
combined.177 After the Seahawks won the NFC Championship, $200,000 of phony merchandise
was seized in the Seattle area.
The NFL actively identifies websites that are selling fake NFL merchandise, and closes
them down with the assistance of brand protection companies, such as MarkMonitor.178 The
league then takes these scofflaws to court. In 2013, the NFL was awarded a $273 million default
judgment against the operators of more than 1,000 websites.179
While law enforcement pursues trademark infringement after it occurs, business owners
should do all they can to guard their intellectual property. Although registration is not required
under federal law in order to protect a company’s right to use a trademark, owning a federal
trademark provides some advantages over common law rights, including:180
Legal presumption of ownership of the mark;
Public notice of ownership of the mark;
Listing in PTO’s database of trademarks;
The ability to notify the U.S. Customs and Border Protection Service of the
registration in order to prevent importation of counterfeit foreign goods illegally
using the mark;
The right to use the federal registration symbol “®”;
The ability to file legal action in federal court; and,
The ability to use the federal registration as a basis by which to file for registration
in foreign countries.181
Trademark owners can register their brands with the PTO by themselves; however, many
choose to work with a law firm that specializes in patents and trademarks. A June 2011 article in
Inc. magazine recommended that the same attorney who registers the trademark should also
provide counsel regarding anti-infringement activities and help locate a trademark watch service
to assist in monitoring any potential infringement activities.182 The Houston Chronicle made
several recommendations about how to protect a trademark on the Internet, including building a
unique brand, registering the mark, monitoring competitors online to ensure they are not also using
the mark, fighting infringement, and protecting the brand.183
Some IP owners have been able to stop infringement on their own. For example, when
Daniel Lubetsky, the chief executive of Kind Snacks, heard that someone else had copied the
company’s distinctive packaging, he sent the offending company a cease-and-desist letter and was
able to get them to stop using similar packaging for their products. 184 However, not everyone is
so successful.
On January 13, 2014, artist Tiffany Bozic detailed on Tumblr her ongoing battle against
infringement of her artwork when she discovered that clothing manufacturer Romwe was selling
sweatshirts with an image of her painting of Strigiformes owl faces. She requested that people not
purchase the sweatshirt from Romwe or provide the company with any support.185 In her posting,
she detailed how she tries to prevent her work from being distributed without her authorization:
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This is usually how it goes. I send the company a cease and desist letter. Usually
they do not respond at all, they may or may not take down the merchandise from
their website (or out of stores for that matter), meantime, they collect the money,
and then move on and steal art from another emerging artist. And the cycle repeats,
making it increasingly difficult for emerging artists like myself to earn a living.186
This type of infringement is not limited to artwork. Designer Liz Fields, who specializes
in wedding gowns and bridesmaids’ dresses, spoke with CAGW about her ongoing efforts to
combat counterfeit products in the fashion industry. Fields is a young designer who attended The
George Washington University before working for costume designers Merit Allen and Michael
O’Conner.
After launching her own line of wedding gowns and bridesmaids’ dresses in 2010, she
quickly noticed that her designs were being sold at deep discounts on unapproved websites. Over
the following three years, she made nearly 1,500 requests for websites to be taken down for selling
counterfeit products under her name. She described how the Google request site was difficult to
use in order to report a counterfeit site. There was no place to call for assistance and it would take
months for a site to be taken down.
Wedding planning is always an emotional rollercoaster ride; as attested by buyers’ reviews
of the purchases they made on websites carrying the counterfeit gowns under the Liz Fields label,
their wedding dreams turned into nightmares:
I’m in tears. My wedding is a month away and my dress FINALLY came. The
sizing is terrible (it doesn’t fit at all) and the quality is so bad! It looks like my
five year-old nephew sewed the dress together. Actually, he might have done
a better job. The shoulder straps are uneven. Visibly uneven. One is three
inches bigger than the other….
This isn’t a site I would recommend to anyone. I ordered my wedding dress
through this place, but they emailed me saying that they couldn’t possibly
make the dress I picked and that the fabric and everything needed to be changed
about it because they ‘didn’t have the right lace.’ I didn’t like this, so I emailed
them back saying to cancel…
Another purchaser was equally frustrated and outraged:
Ordered 2 wedding dresses worth $400. Both were poor quality … nothing
like the pictures … cheap looking and ink visible at the seams that showed
through the fabric … couldn’t wear neither and I requested permission to return
immediately and everything they said the pics showed nothing was
wrong…they actually offered me $10 to fix it myself …
BEWARE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!187
Fields suggested why a bride would put herself through such an ordeal: “…many bridesto-be will be snookered into buying counterfeit wedding dresses. They think they’re getting an
incredible deal on designer duds – only to be left with a cheap knockoff from some sweatshop
overseas.”188
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According to Fields, Tide-buy is one of the largest counterfeit sites, grossing $5 million in
sales in 2013. Fields estimated that, with an average Internet sale price posting of $150 per dress,
the company may have sold more than 30,000 dresses that year. Fields explained that not only do
consumers purchase dresses from these counterfeit sites, but retailers also buy from them in an
effort to increase their profit margins. This makes it difficult for small businesses like hers to
continue to compete.
In addition to the impact of the counterfeit sites on her sales, in the fall of 2013, government
enforcement efforts against counterfeit goods led to a delay in Fields’ importing of a large
shipment of samples for customers to try in authorized shops before placing orders for their gowns.
Her shipment was stopped at the border despite the fact that all the paperwork was in order and
taxes and fees on the goods had been paid. The dresses should have been in the stores before the
holiday shopping season. Fields estimates that the delay cost her nearly $4,000 in sales. This
official insult on top of illegal injury helped push Fields to close her business in 2014.
While law enforcement efforts to stop Fields’ samples were clearly in error, official
government action to prevent counterfeit trademarked products from reaching the marketplace is
an essential part of the worldwide fight against the theft of intellectual property. Unfortunately,
while one branch of government is investigating counterfeit activities, another branch may be
taking steps tantamount to stealing IP by forcing certain products to be sold in plain packaging,
thus diluting the trademark and eliminating the familiar look of the brand. Among other issues,
these actions raise questions about whether the affected companies would be entitled to
compensation from the government.
For
example,
Australia
apparently believes that it is not
sufficient that tobacco products bear
warning labels about the risk of
cancer and other diseases. Beginning
in December 2012, all such products
sold in Australia must have a label
that contains a photo intended to
shock consumers, accompanied by
phrases such as “Smoking Causes
Cancer” or “Smoking Causes
Blindness.” The package colors are
the same for all brands and therefore
become difficult to distinguish. For
example, Marlboro Red, which
normally has a distinctive red and
white label with the Phillip Morris
logo on the front of the package, is sold in Australia in a solid green package with pictures of body
parts on the side and the words “Marlboro Red” on the back and bottom. The Phillip Morris logo
does not appear anywhere.
A study conducted by the Australian Institute of Health and Welfare (AIHW) from 2010
to 2013 claimed that, as a result of plain packaging, the smoking rate in Australia declined by more
than 2 percent.189 The study further found that daily smoking rates had almost halved since 1991;
people aged 40-49 were most likely to smoke daily; people aged 18-49 were less likely to smoke
daily than they were 12 years ago, but there was little change for those aged 60 or older; smokers
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reduced the number of average cigarettes they smoked weekly (from 111 cigarettes in 2010 to 96
in 2013); and, about 1 in 6 smokers had smoked unbranded tobacco in their lifetime, although only
3.6 percent smoked it currently.190 However, the attribution of plain packaging for the drop in
smoking from 2010 to 2013 is a dubious claim on its face since the law passed at the end of 2012.
The more likely reason for the decrease was the 12.5 percent increase in cigarette taxes over the
course of those four years.191
During a July 17, 2014 NewsCorp Australia interview, AIHW Senior Executive Geoff
Neideck admitted that it would be a stretch to claim that the use of plain packaging played “a key
factor” in cutting the smoking rate.192 Nonetheless, the lack of evidence that plain packaging
changes behavior has not stopped legislators from going after other products. A bill that would
restrict packaging on alcoholic beverages has been introduced for the past several years, although
it has not yet been enacted.193
Other countries have considered the adoption of plain packaging for various products. The
New Zealand parliament has hinted that it plans to institute plain packaging with graphic warnings
on alcoholic beverages sometime this year,194 while India,195 France,196 South Africa,197 and the
United Kingdom198 are considering tougher packaging laws for tobacco products by 2015.
One wonders which legitimate industry will be next. For example, during his tenure as
Indonesia’s Minister of Trade, current Indonesian Director General for International Trade
Cooperation Gita Wirjawan warned New Zealand's Ministry of Health that, “If the cigarettes we
export there [New Zealand] are not allowed to have brands, then the wine they sell here [in
Indonesia] shouldn't also.”199
Not only does plain packaging create a disadvantage to consumers wishing to purchase
specific brands based on familiarity, quality, or brand loyalty, it also increases the risk of
counterfeit or fake products entering the marketplace by allowing bootleggers to easily copy plain
packaging. Following the implementation of plain packaging rules in Australia, counterfeiting
and smuggling of illicit cigarettes increased by 40 percent, and seizures of illicit cigarettes
increased by 143 percent, from 82 million in 2012 to 200 million in 2013.200
The entry of additional counterfeit goods into the marketplace puts consumers at increased
risk. For example, bootlegged cigarettes can contain caustic or toxic chemicals, including high
levels of arsenic, due to fewer controls over manufacturing.
Imagine plain packaging appearing on every product that a bureaucrat finds objectionable:
trucks and SUVs; fatty and salty foods; beer, wine, and liquor; and, even certain types of clothing.
The government is already far too involved in everyone’s life; such additional overprotection is
both unnecessary and ineffective. Plain packaging also undermines the credibility of government
efforts to protect IP.
Fortunately, some industries are fighting back. In 2012, Mars, Inc., the American-owned
global confectionery and food manufacturer and the third-largest privately held company in the
U.S., wrote to the United Kingdom Department of Health voicing its concern over the impact of
plain packaging.201 The letter stated that “Mars is concerned that the introduction of mandatory
plain packaging in the tobacco industry would also set a key precedent for the application of similar
legislation to other industries, including the food and non-alcoholic beverage industries in which
Mars operates.”202
While a plain label on a candy bar may be costly to companies and confusing to consumers,
plain packaging for beer, wine and liquor would create far more challenges. For example, even
the most sophisticated buyers of fine and rare wines have been duped by fake labels; the problem
would be even more pronounced with plain packaging.
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On August 6, 2014, wine “dealer” Rudy Kurniawan was sentenced to 10 years in prison
for fraud, along with a $20 million fine and $28 million in restitution to the people he had
defrauded. Beginning in 2004, Kurniawan mixed bottles of young wine together with older French
wines of questionable vintage, slapped on fake labels, and sold them at exorbitant prices to wealthy
clients who believed they were genuine rare bottles worth thousands of dollars.203
The scheme worked for several years in part because most of the buyers simply bought and
stored the wine without tasting it, a common practice of rare wine collectors. It unraveled in part
because Kurniawan created a label for a Domaine Ponsot vintage that never existed.204
Creating and protecting IP is the goal of every individual or company that wishes to become
successful in the marketplace. Indeed, some names have been used so often that they have replaced
a group of products that have a more ubiquitous description. For example, “Xerox” was once used
instead of “copy”; “Kleenex” is often used instead of “tissue”; and, “Google it” is used instead of
“search.” These are classic examples of the importance of branding.
While few products become so iconic, even the smallest icons need to be protected from
infringement. With the help of the PTO, legal counsel, law enforcement, and non-interference
from plain packaging proponents, any product has the potential to become a true household name.
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Chapter 5 –Patents: To Create; Perhaps to Use, Perhaps to License, Perhaps
to Litigate
“This is a great day for me. I feel that I have at last struck the solution of
a great problem--and the day is coming when…friends converse with each other
without leaving home.” – Alexander Graham Bell, March 10, 1876, on the
successful testing of the first telephonic transmission.205
On July 31, 1790, Samuel Hopkins was issued the first U.S. patent for improving “the
making of Pot ash and Pearl ash by a new Apparatus and Process.” Pot ash was the nation’s first
industrial chemical. Since there was no federal trademark or patent office at that time, the Hopkins
patent was signed by President George Washington, Attorney General Edmund Randolph, and
Secretary of State Thomas Jefferson. Two other patents were issued in 1790: one for a new
candle-making process and the other for Oliver Evans’ flour-mill
machinery.206
Since those first three patents were issued, 5.1 million
patents have been approved by the U.S. government, including a
record 302,948 patents in 2013.207 That total was 49.7 percent of
On May 22, 1849,
the 609,082 applications that were filed with the agency.208
Abraham Lincoln was
There were 571,612 utility patent applications, or 93.9 percent of
issued patent number
the total patents filed. The rest of the patents were for design
6,469 for an invention
(36,064) and plants (1,406).
for buoying vessels.
According to the PTO, a patent is a grant of a property
U.S. Patent and
right issued to the creator of an invention for a certain period of
Trademark Office.
time.209 Specifically, a patent “confers ‘the right to exclude
others from making, using, offering for sale, or selling the
invention throughout the United States or importing the invention into the United States’ and its
territories and possessions…”210 Patents that were in force on June 8, 1995, and patents issued
after that date are in force for a term that is the greater of the 20-year term, or 17 years from the
patent grant.211
Once a patent is granted, the owner has several options: use the patent actively, hold the
patent inactively, license the patent (both active and inactive) to others, or pursue claims of
infringement against unauthorized users of the patent. Patent holders who cannot afford the cost
of development, have been unable to license their inventions, or have no intent to develop their
patents, have come to be labeled over the past two decades as non-practicing entities (NPEs).
NPEs often include universities, individual inventors, and companies of all sizes, both domestic
and foreign.
Approximately 2.3 million patents are considered to be “active.” Small businesses,
individual inventors, research labs, and universities own 60 percent of all patents, yet those patents
generate a miniscule 1 percent of licensing revenue. In fact, 95 percent of patents do not provide
a single dollar of licensing revenue.212 This inefficient commercialization of U.S. innovation
annually wastes more than $1 trillion in the potential value of patents by American firms that are
failing to extract the full value of their IP.213 This factor, in and of itself, has a significant impact
on the U.S. economy, global competitiveness, and the nation’s ability to create high-paying, highvalue jobs.
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There are several reasons why patents are underutilized, including over-valuation, the cost
and risk of litigation, and lack of internal resources. Unlocking these tangible assets would create
added value and permit inventors to monetize their ideas. One of the most effective ways to
achieve that objective is through licensing, which has been a standard practice since the patent
system was established in the U.S. The third patent signed by President George Washington, for
Oliver Evans’ flour-mill machinery, was eventually licensed by Washington himself to modernize
grain processing at the grist mill on his Mount Vernon estate.
According to Bowdoin College Professor of Economics B. Zorina Khan, “a remarkably
high proportion of the great inventors extracted much of the income from their inventions by
selling or licensing the rights to their inventive property.”214 Although Professor Khan was
speaking about nineteenth century inventors, the same reality applies today.
For example, one-third of Qualcomm’s revenue comes from licensing, accounting for 80
percent of the company’s profits. Qualcomm, which holds the most important patents for code
division multiple access (CDMA) chips, the standard used in 3G phones, gets paid between $6 and
$7 for each smartphone sold.215
In the first half of its 2014 fiscal year, licensing comprised 70.2 percent of Microsoft’s
revenue and 93.7 percent of the company’s gross margin. Licensing revenue is derived from
Windows and Office for consumers, phone patent licensing, and commercial licensing.216
Although these companies have a clear vision of how to maximize the use and licensing
of their patents, other companies both large and small, as well as universities and individual
inventors, either do not have a similar mission or cannot find users or licensees for their patents.
According to the PTO, a license is a contractual agreement that gives a licensee the right
to use the patent and prevents the patent owner from suing the licensee for infringement, as long
as the licensee abides by the terms of the agreement in its use of the patent. These agreements
usually limit the length of time, field of use, and geographic area. Licenses may be exclusive (one
licensee) or non-exclusive (multiple licensees). In both cases, the patent holder retains title to the
patent.217
There are many resources to help patent holders license their patents. Law firms that
specialize in patents help inventors obtain, protect, and license their patents. The PTO website
includes links to several independent inventor organizations, information about every state’s
attorney general office, and a list of the PTO’s designated Patent and Trademark Resource
Centers.218 And, of course, there are numerous websites that provide guidance on how to license
patents; these should be viewed with the usual caveats about randomly seeking advice on the
Internet.
Some patent holders have taken their own steps to license underutilized patents. During a
two-week period in April 2014, Pennsylvania State University conducted an online auction of 59
portfolios of patents. Although the university did not state whether the auction made any money,
the process provided a better understanding of the market value of the patents. The auction will
also help the university decide whether to renew or abandon the portfolios that were not licensed.219
While Penn State at least tried to obtain some return from its underused patent assets, many
universities retain far too many patents because they believe they are worth more they really are.
However, the number of high-value patents is limited.220
According to a November 20, 2013 Brookings Institution report, 87 percent of universities
that licensed patents did not break even on the costs related to research and development, patent
filing, and patent maintenance over the prior 20 years.221 That, of course, means that a small
number of universities accounts for a significant amount of licensing revenue. In 2012, eight
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universities that comprise the top 5 percent of licensing income earners took in 50 percent of
licensing revenue and the top 16 percent earned 70 percent of licensing revenue. The Brookings
report noted that “only 37 universities have been able to reach the top 20 of licensing revenue in
any given year over the last decade.”222
According to surveys by the Association of University Technology Managers, universities
“make more than 4,000 patent licensing agreements annually and collect about $2 billion a year in
licensing revenue.”223 The Brookings report recommended several ways to improve the return to
universities for their investment in patents, such as expanding the Small Business Technology
Transfer program to universities and creating a new pool of federal funds that would be distributed
“more equitably” to universities based on the number of faculty.224
However, before more taxpayer dollars are spent on technology transfer, universities
should take advantage of the available opportunities to sell or license their patents through private
sector companies. For example, two companies, PatentBooks and Patent Properties, have
developed systems that offer patent licenses at disruptively low prices. PatentBooks offers patent
users licenses to all of the patents it represents. Patent Properties, through its United States Patent
Utility, offers patent users licenses to packages of the 50 most relevant patents as determined by a
proprietary statistical analysis. Each approach is designed to create a marketplace for both creators
and users of patented IP, as well as to reduce the impact that high litigation costs have on the ability
of patent licensing to scale beyond the small percentage of patents currently being licensed.
PatentBooks was founded by Art Nutter in 2014. The company facilitates “cost-effective
patent licenses between patent owners and patent users by aggregating patents relevant to a
product, offering patent users a single price to license all the aggregated patents, and distributing
the licensing income to patent owners according to the quality of their aggregated patents.”225 The
value of each patent is determined by TAEUSworks, which uses economic, technical, and legal
parameters to evaluate and rate patents. The process was developed by the TAEUS International
Corporation, which was founded by Mr. Nutter in 1992.226
PatentBooks permits patent owners to sell their patents on a voluntary basis and patent
users to license all of the aggregated patents for a particular product. Patent owners can list their
patents at no charge in PatentBooks and are paid licensing fees according to the value of their
patents in three tiers as determined by TAEUSworks. The licenses are non-exclusive, and patent
owners remain free to license their patents in any other manner.227
The PatentBooks website claims that the licensing system will be disruptive to several
stakeholders in the patent marketplace. With more voluntary transactions online, there will be
fewer bilateral licensing agreements, reducing the need for in-house licensing departments and
their attorneys. There will be less work for patent litigation lawyers. There will be fewer lawsuits
by patent trolls, because the value of patents will be published in Patent Books.228
Patent Properties, Inc. was developed by Jay Walker, the founder of priceline.com, who
personally has more than 700 issued and pending U.S. and international patents and ranks as the
world’s 11th most patented living inventor.229 Patent Properties has stated that the company
“develops and commercializes its unique portfolio of assets and is creating a disruptive licensing
solution for the mass market of patent owners and users.”230
In November, 2014, Patent Properties is scheduled to release its United States Patent
Utility, which the company’s website describes as “a neutral platform that will provide a full
package of patent-related licensing, information and financial services at disruptively low prices
to patent owners and users alike.” This “innovative way to license innovation” will be completely
voluntary.231
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The intent of the utility is to change the patent system from one that finds fault and
generates lawsuits to a more reasonable standard of “‘no fault,’ based on ‘statistical probability’”
as determined by a proprietary formula. The United States Patent Utility will also provide patent
and product comparison testing, as well as market and litigation information. The company claims
that this will be “the first time … the huge un-served market of patent owners and users will be
able to benefit from the invention marketplace by participating in a simple and affordable way.”232
In an August 18, 2014 interview in the Stamford Advocate, Walker and Patent Properties
CEO Jon Ellenthal discussed the company’s approach to patent licensing. Walker compared
providing access to large numbers of patent licenses by a single user at a reasonable price to the
long-standing process used by ASCAP that allows radio stations to pay a single fee in order to
obtain access to a large catalog of songs licensed by ASCAP. Walker stated, “by using simplicity,
technology and common sense that works for everybody, and especially by keeping prices very
low, we can replicate in the intellectual property and patent world what ASCAP did in the music
world.”233
Although Patent Properties’ Patent Utility is focused on small and medium-sized
businesses, Walker believes that larger companies, which also have a need to manage patent risk
and access the innovation locked away in more than 2 million unlicensed U.S. patents, will find
significant value in marketplace-based licensing. The cost per subscriber will be about $1,200 for
a package of 50 patents, plus a variety of other patent information services. Patent owners will
received 85 percent of the total licensing revenue achieved through the Utility, with owners of the
more highly-valued patents in the 50-patent packages receiving a larger share of the overall
licensing income than owners of patents with less statistical relevance to a user’s product or
service.234
Villanova University School of Law Professor Michael Risch, an expert in patent law, said
that the approach of the United State Patent Utility to charge a relatively low and flat price was
something that he had not previously seen. He noted that the proposal would work if the inventions
were sufficiently important for users to pay the fees for the patents.235
Both PatentBooks and Patent Properties appropriately assert that one of the results of their
licensing programs will be a reduction in patent litigation. Another approach to that objective is
being taken by RPX Corporation, which was founded in 2008 as “the first defensive patent
litigation firm in the intellectual property market” and “a leading supplier of patent risk solutions
… to technology companies worldwide.”236 The company “acquires high-risk patents and patent
rights”237 by buying them on the open market. RPX clients “generally receive a license to every
patent we own, making each patent in the RPX portfolio one less patent that could be used in an
infringement assertion against the members of our network.”238 According to the company’s
website, RPX has “acquired more than 2,000 patent assets in the open market, representing
approximately 1,900 avoided litigations for our clients” as of June 30, 2014.239
According to a March 24, 2012 Forbes articles, RPX uses its subscription fees to “buy and
retire patents that could be problematic. Collectively buying patents is more efficient and cost
effective. It’s like having a consortium without the hassle of creating one.”240 RPX does not assert
any of the patents it owns; the company will only defend those patents. Therefore, the value
transferred from patent users to patent owners will occur “as efficiently as possible (without
unnecessary and expensive legal conflict).”241
The company also provides risk management services, litigation insurance, and strategic
advice. For example, RPX “combines a traditional claims-paying policy with proactive
intervention into the patent market to reduce the likelihood and expense of NPE litigation.”242
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In regard to NPEs, also called patent assertion entities (PAEs) or the more derogatory
patent trolls (used by companies subject to a patent infringement lawsuit or a demand letter from
a patent owner), there is an ongoing debate over whether the PAEs are doing anything differently
than past patent holders in asserting their patent rights; whether they are a “problem” that needs to
be addressed; or, whether they are “outliers” in the patent system.
On September 27, 2013, the Federal Trade Commission (FTC) announced that it would be
seeking public comment to obtain information on approximately 25 PAEs in order to determine
how they do business and to better understand their impact on competition and innovation. The
FTC noted that “PAEs are firms with a business model based primarily on purchasing patents and
then attempting to generate revenue by asserting the intellectual property against persons who are
already practicing the patented technologies.”243
The FTC noted that PAEs are not considered to be non-practicing entities such as
universities and other patent holders who are seeking to develop and transfer technology. The
agency plans to issue two reports; the first will examine how the PAEs operate and the second will
discuss how they impact competition and innovation.244
In an interview published in Law360 on September 4, 2014, FTC Commissioner Joshua
Wright said that the PAE report will “probably … disappoint some people” who are looking for
an up-or-down vote on PAEs, but it will nonetheless illuminate an “issue that is ‘chock full of
theory and supposition.’”245 Wright noted that data “doesn’t exist” which would determine
whether the PAEs are a positive or negative factor in the patent system, and that the commission
needs to start with the facts. He also stated that the FTC has the ability under either its consumer
protection or competition authority to bring cases against PAEs regardless of the outcome of the
two reports.246
The FTC is not the only federal agency looking into NPEs and PAEs. On August 22, 2013,
GAO issued a report entitled “Intellectual Property: Assessing Factors That Affect Patent
Infringement Litigation Could Help Improve Patent Quality.”247 According to GAO, from 2000
to 2010, the number of patent infringement lawsuits fluctuated slightly. However, from 2010 to
2011, the number increased by about one-third. In a detailed analysis of 500 lawsuits from 2007
to 2011, GAO found that the number of overall defendants had increased by about 129 percent;
NPEs filed about one-fifth of all lawsuits. GAO also found that software-related patents
constituted about 89 percent of the lawsuits.248
Stakeholders told GAO that there were three reasons for the increase in patent infringement
lawsuits: 1) many of these lawsuits are related to the prevalence of patents with unclear property
rights; 2) the potential for large monetary awards from the courts can be an incentive for the patent
owners to file infringement lawsuits; and, 3) companies are recognizing the patents as a more
valuable asset than previously considered.249
The relationship between more patents and more patent litigation was also analyzed by Dr.
Khan. She concluded that “…although it has increased over the past few years, the rate of litigation
(cases as a percentage of patents), is still unexceptional. This is especially true since changes in
legal rules (ironically intended to reduce litigation) have led to a nominal or administrative increase
in the numbers of cases filed in the most recent years.”250 The legal rules Dr. Khan alluded to have
largely resulted from the enactment of the Leahy-Smith America Invents Act (AIA) on September
11, 2011.
Dr. Khan reviewed the pattern of patenting and litigation between 1790 and 2012 and found
that the “per patent rate of litigation was highest in the era before the Civil War and during the
subsequent market expansion that started in the 1870s.”251 New innovations, such as “the
35
telegraph, telephone and automobile were invariably accompanied by an upswing in civil
litigation.”252 Dr. Khan noted that ‘“vexatious’ and costly litigation about all areas of law –
patents, property, contracts and torts alike – were inevitably associated with the advent of
important innovations, and the moral here is that it is not possible to pre-assign labels that would
predict who would act in a meritorious fashion and who would engage in unproductive behavior
to drive out competitors.”253 Indeed, not all NPEs are PAEs and not all PAEs are patent trolls.
Dr. Khan’s perspective on the history of patent litigation; FTC Commissioner Wright’s
comments about the likely outcome of the agency’s study and its capacity to address any violations
of law; and, the availability of marketplace alternatives to litigation should address many of the
issues surrounding how PAEs impact the patent system.
In fact, there is a more serious challenge to patents than the level of domestic litigation.
Several countries, particularly China, have been departing from international IP norms in order to
pursue domestic economic goals. And according to FTC Commissioner Maureen Ohlhausen,
decisions by the FTC itself may have given “some cover to the Chinese for their departure” from
international standards.254
Commissioner Ohlhausen cited two FTC decisions involving standard-essential patents
that restricted the ability of holders of such patents to seek injunctions. Describing her dissent in
the cases, the commissioner said, “I worry that these actions may send the wrong message to our
foreign counterparts that we do not place a very high value on intellectual property rights and that
we failed to explain adequately why these cases are the exception rather than the norm.”255 Despite
U.S. court decisions and FTC statements that support the rights of patent holders in licensing
matters, the commissioner heard Chinese officials citing the two FTC cases as settled U.S. law
and, therefore, supportive of their policies on such matters.256
FTC Commissioner Wright expressed similar concerns about the FTC as well as the
Department of Justice (DOJ) in his remarks to the New York City Bar Association on March 11,
2014. He said that antitrust laws could be used to limit IP rights, “especially in young and
emerging antitrust regimes, and most notably China.”257 In its September 2014 report on the
implementation of China’s anti-monopoly law (AML), the U.S. Chamber of Commerce echoed
those concerns stating, “China appears to be using the AML to promote industrial policy goals,
even at the expense of competition” and has engaged in “systemic, officially sanctioned
curtailment of IP rights.”258
In addition to his concerns over China’s AML, Commissioner Wright stated that both the
FTC and DOJ should enforce antitrust laws equally for both IP and real property rather than
establishing a separate, specific analysis for IP cases. Otherwise, special rules for IP could
“promote hostility toward the exercise of property rights and their exchange,” 259 as well as create
an ad hoc approach to enforcement that would make it more difficult to protect IP rights both in
the U.S and around the world.
At the same time the FTC and DOJ may be inadvertently helping to undermine IP rights in
other countries, the U.S. patent system is becoming more closely aligned with the rest of the world.
Before the enactment of the AIA, patents were provided to the “true and first inventor.”260 The
AIA increased efficiency and streamlined the patent application system to “improve patent quality
and limit unnecessary and counterproductive litigation costs.”261 The legislation also harmonized
the U.S. patent grant process with the system used in most other countries.262 In addition, the AIA
provided a simplified definition of prior art, a comprehensively revised existing administrative
proceedings for post-issuance of patents, and created several new administrative proceedings.263
36
On December 5, 2013, the House passed H.R. 3309, the Innovation Act, by a vote of 32591. The legislation would require patent assertion letters to provide a detailed explanation of the
patent being violated, as well as offer other discovery information. In addition, contrary to current
law, the patent holder would be permitted to continue to use the patent in question until the matter
was resolved and pay additional damages later if the case was decided unfavorably to the
defendant. The Senate did not consider the bill, so the issue will be deferred to the 114th Congress.
Spurred by the attention paid to the issue in Washington and given the impact of abusive
demand letters from some patent owners to end users of technology seeking monetary settlements
in the face of litigation threats, bills have been either introduced or signed into law in 29 states
since the beginning of 2013. For example, on August 17, 2014, Illinois Governor Pat Quinn signed
a bill that would make it a violation of civil law if an individual sending a demand letter does not
hold a patent or represent the patent holder, or if the patent has been overruled in court or expired.
Patent litigation has always had a proper role in the protection of IP. It may behoove
Congress and state legislatures to be cautious in moving forward on legislation before the FTC
issues its reports on PAEs. As Dr. Khan stated in her report, “data on patents granted, litigation
rates over the past two centuries, and the role of non-practicing entities, indicate that these features
of the current market in intellectual property are hardly anomalous. Indeed, they have been
inherently associated with disruptive technologies that transformed the United States into the
world leader in industrial and economic growth.”264
Eli Whitney’s invention of the cotton gin in 1794, Alexander Graham Bell’s telephone in
1876, and Thomas Edison’s development of the light bulb in 1879 were disruptive in their time,
yet their positive impact was felt for many years. In modern times, the rate of technological
advancement has accelerated these trends.
The next disruptor may be working in his or her parents’ garage or holed up in a college
library. Or the upstart venture may be financed by an individual or group of financiers who have
already been successful innovators.
In 2013, CNBC began a feature called “The Disruptors” to highlight how private
companies were “disrupting the status quo in 10 traditional industries: energy, enterprise, financial
services, healthcare, media, manufacturing, retail, telecom, travel & leisure.”265 The network
evaluated nominations from venture capitalists, reporters, business school academics, and startup
investors to create the first top 50 list in 2013. The CNBC 2014 Disruptor 50 list covers companies
in 27 industries “whose innovations are revolutionizing the business landscape.”266
In addition to their unpredictable, yet likely positive, impact on the marketplace, all of these
companies have something else in common with the cotton gin, the telephone, and the light bulb:
their success will depend in large part upon the creation and protection of their patents and other
IP. An efficient licensing system allowing American innovation to reach the marketplace and
contribute to global competitiveness will also be needed.
The U.S. must continue to lead the way in promoting and defending IP around the world;
of special importance will be its effort to persuade other nations to adopt strong patent laws.
As Mark Twain aptly noted, “That reminds me to remark, in passing, that the very first
official thing I did, in my administration – and it was on the first day of it, too – was to start a
patent office; for I knew that a country without a patent office and good patent laws was just a
crab, and couldn’t travel any way but sideways or backways.”267
37
Chapter 6 – Electronics, Software, and National Security: Pulling the Plug on
Phony Parts
Consumers want the latest product, the coolest device, and the biggest screen at the lowest
possible price. Sometimes their desire for these devices is so intense that fights break out in stores
during the first day the product is available for sale. Others patiently wait until the frenzy dies
down before they make the purchase.
There is another, less obvious category of “consumers”: individuals who obtain counterfeit
versions of a hot new product before it is released for sale to the public.
In July 2014, during the buildup to the release of Apple’s iPhone 6 and 6 plus, several
cloned or counterfeit versions became available through various websites.268 The fakes were based
on speculation of what the newest iPhone would look like, and the purchasers typically were
individuals who wanted to appear to have the latest tech device before the real deal was
available.269 While the fake iPhone 6 looked like a genuine iPhone, the similarity stopped there.
The cloned versions ran on different operating systems, including Android.270
While the release date of the two new phones was kept confidential by Apple, it turned out
that the counterfeit phones were available two months before sales of the real phones began on
September 19, 2014.271 More than 10 million of those devices were sold during the first weekend
they were available.272
Counterfeiters have targeted and manufactured other valuable products. On September 30,
2014, two men pleaded guilty to conspiracy to commit computer fraud and copyright infringement.
One of the charges was manufacturing and selling a counterfeit Xbox One gaming system before
it was officially released. Prosecutors alleged that the men stole more than $100 million in IP and
proprietary information relating to the Xbox One and the Xbox Live gaming systems. The men
had obtained much of this information through a U.S. Army computer system, targeting Microsoft
and several video game developers in order to illegally obtain gaming information and other IP
and trade secrets.273
While the theft of software and electronics has clear financial consequences, the use of
counterfeit products can also be deadly. In July 2013, a woman in China died when she answered
a call using her iPhone 4. Her phone was connected to a third-party charger and she was
electrocuted when the call came through.274 Even though Apple was not at fault, the company
responded to the problem in August 2013 by offering a worldwide USB power adapter trade-in of
third-party chargers that might not be “designed properly … resulting in safety issues.”275
Unfortunately, that did not prevent the continued sale of counterfeit phone accessories. In
June 2014, a woman died of electrocution in Sydney, Australia. She was found with burns on her
chest and ears, wearing headphones while holding her laptop. Officials believe that her death was
linked to an unbranded phone charger purchased at a phone accessories kiosk.276
Counterfeit cell phone chargers are not the only potentially lethal electronic products. As
noted in chapter 1, on May 13, 2013, ABC 7 News in Chicago covered a raid on a Los Angeles
store selling counterfeit goods.277 The news story included an interview with UL experts, who
demonstrated the fire hazards of bogus extension cords. The experts said that counterfeit products
could be in anything in homes from toasters to wall outlets, with the potential to cause damage or
injury.278
There is nothing like a warm fire during the holiday season, but flames shouldn’t be
shooting out from holiday decorations. According to the Home Safety Council, lights on
Christmas trees account for an average of 240 fires each year.279 The fires can be caused by the
38
lights themselves or by fake extension cords, which can easily be overloaded. The Electrical
Safety Foundation International found that 72 percent of individuals are likely to use at least one
extension cord for their decorations, and 33 percent of those individuals are unlikely to check for
a certification mark such as UL.280
In addition to consumers being duped by counterfeit electronics, fake parts have entered
into the federal government’s supply chain. In one of its earliest reports on this problem in October
1990, GAO found that nonconforming parts (including counterfeit parts), such as fasteners, pipe
fittings, electrical equipment, and valves were being installed in nuclear power plants. GAO
reported that “5 years after DOD had identified certain vendors as suspect, utilities installed steel
from these companies in safety systems designed to prevent or mitigate an accident at a nuclear
plant. NRC warned utilities about these vendors only after they were indicted for selling nonconforming products.”281
GAO noted that six federal agencies were planning to create a system to exchange
information relating to nonconforming products and develop a clearinghouse for sharing critical
information relating to vendors of these goods. GAO recommended that the Office of
Management and Budget (OMB) develop an action plan to implement the strategy developed by
these six agencies, as well as a computerized tracking system that would provide federal agencies
with access to the information.282
In January 2010, the Department of Commerce, one of the six agencies involved in the
proposed information exchange, released a report on a study the agency conducted from 2005 to
2008 evaluating the prevalence of counterfeit electronics in the defense industrial base. The
analysis found “that 39 percent of companies and organizations participating in the survey
encountered counterfeit electronics during the four-year period. Moreover, information collected
highlighted an increasing number of counterfeit incidents being detected, rising from 3,868
incidents in 2005 to 9,356 incidents in 2008.”283
On June 24, 2011, GAO issued a report on the joint plan developed by the National
Aeronautics and Space Administration and DOD to stop counterfeit parts from entering the supply
chain for space and missile defense systems through a set of standards requiring contractors to
prevent and detect counterfeit parts and materials. GAO noted that, despite these efforts,
protecting the supply chain remains problematic due to “broader acquisition management
problems, workforce gaps, diffuse leadership in the national security space community, the
government’s decreasing influence on the overall electronic parts market, and an increase in
counterfeiting of electronic parts.”284
On February 21, 2012, GAO released the results of a study it conducted focused solely on
bogus parts entering the DOD supply chain. GAO created a fictitious company to request quotes
from numerous vendors in an effort to purchase 16 parts in three categories: “1) authentic part
numbers for obsolete and rare parts; 2) authentic part numbers with postproduction date codes
(date code after the last date the part was manufactured; and, 3) bogus, or fictitious, part numbers
that are not associated with any authentic parts.”285 All 12 of the parts that GAO received under
the first two criteria were suspect or counterfeit, even though the part numbers used in the request
were authentic. The last four parts were ordered with invalid part numbers and were also
counterfeit.286
On May 12, 2012, the Senate Armed Services Committee released a report on counterfeit
electronic parts in the DOD supply chain. The committee found that China is the primary source
for counterfeit goods, accounting for more than 80 percent of seizures in fiscal year 2011; other
sources include India and Turkey. 287
39
Some of the fake parts provided to DOD are made from electronic waste sent from the U.S.
to other countries. The e-waste is disassembled by hand, washed in rivers, and dried on city
sidewalks. The parts are then sanded down to remove part numbers, rebranded, and recoated to
disguise their origins. The report stated: “Counterfeit electronic parts pose a significant risk to
the performance of defense systems. Even if counterfeits made from previously used parts and
salvaged from e-waste may initially perform, there is no way to predict how well they will perform,
how long they will last, and the full impact of failure.”288
After the committee released its findings, Senator John McCain (R-Ariz.) said, “We can’t
tolerate the risk of a ballistic missile interceptor failing to hit its target, a helicopter pilot unable to
fire his missiles, or any other mission failure because of a counterfeit part.”289
One way to avoid purchasing counterfeit parts is to implement better methods of detection.
For example, DOD is embedding plant DNA into microchips to confirm their authenticity. 290 As
required by the National Defense Authorization Act for Fiscal Year 2012, DOD has proposed new
rules that would require all contractors to report to the DOD Office of Inspector General any
suspected counterfeit or defective parts in the supply chain.291
In addition to the fake parts at DOD, dangerous counterfeit products include “jet engines,
bridge joints, and fasteners in areas of nuclear facilities responsible for preventing the meltdown
of the reactor itself.”292 In 2011, an automotive industry working group identified safety and
liability exposure as a concern for companies that inadvertently install counterfeit parts purchased
through legitimate commerce avenues. The group cited industry experts who said “the real
problem … is that the government does little to police the importation of counterfeit auto parts
into this country.”293
On October 10, 2012, the National Highway Traffic Safety Administration (NHTSA)
issued an advisory urging vehicle owners and auto repair shops to use only certified, original
equipment replacement airbags for vehicle repairs. Although NHTSA had not identified any
deaths or injuries caused by non-certified airbags, the agency’s test of counterfeit airbags found
that they did not deploy properly or propelled metallic shrapnel into the passenger cabin upon
deployment.294
The manufacture of counterfeit products can sometimes be traced to organized crime and
other nefarious operations. In March 2009, law enforcement officers raided a home in Los Reyes,
Michoacán, in Mexico. They found 50 machines used to copy CDs and make counterfeit software,
including fake versions of Microsoft Office products and Xbox video games. It was believed that
the individuals in the home were part of a counterfeit software ring being run by La Familia, a
Mexican drug cartel and organized crime syndicate.295
Both businesses and individuals purchase software and electronics on thousands of
websites, but more individuals than businesses buy games. It is a common misperception that,
when a game is no longer available in stores, it is not illegal to copy and sell it online; however,
copyright protection for works owned by corporations, including gaming software, lasts for 95
years from the year the work was first published.296 The Entertainment Software Association
estimates that piracy costs the industry millions of dollars every year.297
Software counterfeiting has become so sophisticated that many businesses have difficulty
determining whether the products they have purchased are genuine. A 2009 study conducted by
IDC on behalf of Microsoft found that 37 percent of the midsize businesses surveyed were using
some counterfeit software and had spent an average of $10,222 on these purchases.298
When an individual or organization purchases software, the product comes with a specific
number of licenses. For example, a small business may purchase a copy of Adobe Paint Shop Pro
40
to edit photos for use in generating buttons, T-shirt designs, advertising, and web designs. There
are several individuals involved in each of these processes who use the software.
Because there are many users, the company must purchase multiple licenses to be in
compliance with the end user agreement. This is a legal obligation of every purchaser regardless
of its size, from the smallest business to the largest company and government agency. However,
if an inventory of license use is not maintained and kept current, it is almost impossible to
determine whether the organization has enough licenses or too many licenses and, therefore,
whether it is in compliance with software licensing agreements.
The first President to understand that the overuse and underuse of software licenses could
be a problem for federal agencies was Bill Clinton. On October 5, 1998, he issued Executive Order
(EO) 13103, which included a requirement that agencies track their software assets as part of their
responsibility to prevent and combat software piracy. Each federal agency was tasked with
providing an inventory of existing software, determining which software they had the authorization
to use, and creating and maintaining satisfactory recordkeeping systems.299
As one might unfortunately expect from the federal government, EO 13103 has not been
followed all that well. On August 11, 2006, the Secretary of Veterans Affairs (VA) announced
the award of a contract for 300,000 encryption software licenses to protect the information stored
on the department’s laptops and other computing devices, with installation expected to be
completed four weeks later.300 Those expectations were never met.
On October 11, 2012, the VA Office of Inspector General (IG) issued its findings on the
deployment of the encryption software licenses.301 In addition to the original purchase of 300,000
encryption software licenses, the department purchased another 100,000 licenses in April
2011. The IG found that VA failed to use 335,000 of the 400,000 licenses purchased, totaling
about $5.1 million of the $5.9 million spent. The non-deployment was a result of: 1) the agency
failing to test the software for compatibility with existing systems prior to purchase; 2) an
insufficient allocation of human resources to install the software; and, 3) insufficient monitoring
of the project to ensure it was on track.302
The VA is, of course, not the only agency that can’t keep track of its software. On June
25, 2013, the Treasury Inspector General for Tax Administration (TIGTA) released a report on
software license management at the Internal Revenue Service (IRS). According to the report, the
IRS spent $235 million on software licenses in 2011 without an appropriate accounting of its
existing software assets. For example, 21 of the 27 software products reviewed did not have
unlimited software licenses and six had more than one license deployment record.303
The mishmash of software inventory records led to some licenses being either overused or
underused, including eight software products that were not used in a cost-effective manner because
the agency deployed significantly fewer licenses than it had purchased. For three software
products, the IRS deployed more licenses than it had purchased.304
TIGTA recommended that the IRS implement a specialized software license tool designed
to discover, track, and manage software license deployment and usage. Other recommendations
included development of an inventory of software licensing data and maintenance of inventory
with a special software license tool designed to discover, track, and manage software license
deployment and usage.305
The IRS’s response to TIGTA’s recommendations was that no such system existed;
therefore, the agency would have to create its own software inventory tool to manage software
license deployment and usage.306 However, sophisticated software asset management tools exist
in the private sector to perform the functions that TIGTA recommended to the IRS. A simple
41
online search reveals numerous companies offering these programs and services, including
Aspera,307 BMS Software,308 Eracent,309 Flexera Software,310 Microsoft,311 and Snow Software.312
GAO has issued several reports regarding software asset management. In its September
23, 2014 report, GAO said, “effective management of software licenses can help organizations
avoid purchasing too many licenses that result in unused software. In addition, effective
management can help avoid purchasing too few licenses, which results in noncompliance with
license terms and may cause the imposition of additional fees.”313
Because EO 13103 and GAO’s recommendations have not been complied with, Congress
has taken steps to require agencies to perform inventories of their software assets and implement
software asset management processes. Provisions to improve the use and tracking of software
licenses have been included in a bill intended to modernize information technology (IT) acquisition
and management across the federal government, as well as in the FY 2014 and 2015 DOD
authorization acts.
On February 25, 2013, the House of Representatives passed H.R. 1232, the Federal
Information Technology Acquisition Reform Act (FITARA). The bill includes a provision that
would require the OMB director to develop a plan for conducting a government-wide inventory of
IT assets, including software assets, and calls for a review of all existing software licenses on an
application-by-application basis, including duplicative, unused, overused, and underused
licenses.314 Similar language was included in the National Defense Authorization Act for Fiscal
Year 2014, which required DOD to conduct an inventory of its software and other IT assets. The
House-passed version of the National Defense Authorization Act for Fiscal Year 2015 (H.R. 4435)
included an amendment that incorporated FITARA.315 However, it is not clear if the final
legislation will include such language because the Senate version of the bill did not contain all of
FITARA.
The protection of software copyrights and licensing is critical to maintaining the integrity
of digital commerce in the U.S. Federal agencies must appropriately deploy and use software
assets through the use of existing software asset management tools in order to both be respectful
of IP and help prevent piracy. Until this occurs across the federal government, millions of dollar
will be wasted by purchasing either too many or not enough software licenses.
Both government agencies and private sector companies must be wary of counterfeit parts
and help prevent them from entering the supply chain. Consumers should understand that giving
off the appearance of having the newest device on the market can have both financial and physical
consequences. These products provide a false sense of security, until that aura is broken by a
frayed wire, a faulty airbag, or a bad component in a critical weapons system.
42
Conclusion
IP rights have been paramount since the Republic was established. As James Madison
noted in “Federalist Paper 43,” referring to the authority to promote science and the arts by
providing exclusive rights to authors’ and inventors’ writings and discoveries (which became
Article I, Section 8 of the Constitution):
The utility of this power will scarcely be questioned. The copyright of authors has
been solemnly adjudged in Great Britain to be a right of common law. The right to
useful inventions seems with equal reason to belong to inventors. The public good
fully coincides in both cases with the claims of individuals. The States cannot
separately make effectual provision for either of the cases, and most of them have
anticipated the decision of this point by laws passed at the instance of Congress.316
The Founding Fathers understood that by protecting the individual rights of artists, authors,
entrepreneurs, innovators, and inventors, they were promoting the greater public welfare. These
fundamental privileges remain essential to ensure that IP will continue to have a substantial,
positive impact on everyone’s life.
Patent holders need strong enforcement of IP laws in the U.S. and by its trading partners.
New initiatives to license underutilized patents will increase the availability of hundreds of
inventions while reducing the amount of patent litigation. Consumers must have assurances that
they are buying safe and effective products that will not cause them harm, and taxpayers need to
know that the government is not using fake parts in its weapons systems.
However, there are headwinds to the protection of IP rights. The Internet has spawned a
new wave of IP piracy that includes counterfeit drugs being sold on fake pharmaceutical websites
and music and videos being illegally downloaded from file sharing or torrent sites. Stealing IP
and distributing it without just compensation to its creator has a far-reaching negative impact on
the next independent filmmaker, struggling garage band, or young author.
The theft of trademarks creates confusion for consumers who believe they are purchasing
specific brand name goods, only to find that the items are mislabeled, counterfeit, or even deadly.
Some governments have passed laws that essentially strip trademarks from certain goods, in order
to support social goals or policies. Other governments enforce antitrust laws or weaken IP laws to
allow their domestic businesses to make a profit from the ideas and sweat of others. If more
countries develop policies that threaten IP, there will be less incentive to invest in technology,
research, and development, and the global economy will suffer.
Despite these barriers to IP rights, there are many countries that understand and promote
the importance of IP for economic growth. As Great Britain’s ITV Director of Policy and
Regulatory Affairs Magnus Brooke said, “A strong IP regime is an engine of growth, NOT a
barrier.”317
Keeping this engine running smoothly, using the recommendations and concepts contained
in this report and similar sources, will help the global economy continue to grow. In the U.S.
alone, IP-related industries provide more than 40 million jobs318 and account for between 55 and
62.6 percent of GDP.319 Without the innovation propelled by IP, the global economy would be on
a slow (or slower, in current circumstances) train going nowhere.
Everyone benefits from IP. If the Founding Fathers had not recognized its importance, the
light bulb, the telephone, the cell phone, and the microchip might never have been invented. Strong
IP protection is fundamental to keeping the engine of ingenuity on track for generations to come.
43
Thomas A. Schatz is president of Citizens Against
Government Waste (CAGW).
Mr. Schatz is a nationally-recognized spokesperson on
government waste and has been interviewed on hundreds of
radio talk shows from coast to coast. He is a regularly
featured guest on national television news programs and local
news broadcasts. Mr. Schatz has testified numerous times on
government waste issues before committees of the U.S. Senate
and House of Representatives, as well as before state and local
legislative and regulatory bodies.
During his 28 years with CAGW, Mr. Schatz has
helped make CAGW a “leading government watchdog on
fiscally conservative issues, like taxes and earmarks,”
according to National Journal. CAGW was cited by The
Hill for its leading role in successfully pushing for the
congressional earmark moratorium, which was identified as
one of the “top 10 lobbying victories in 2010.” The Hill has
named Mr. Schatz as a “top lobbyist” for five consecutive years, from 2010-2014.
His previous books include “End the Income Tax,” co-authored with Jack Anderson in
1997; and “Telecom Unplugged: Ushering in a New Digital Era,” co-authored with Deborah
Collier in 2014.
Prior to joining CAGW in 1986, Mr. Schatz spent six years as legislative director for
Congressman Hamilton Fish, Jr. and two years practicing law and lobbying.
Mr. Schatz holds a law degree from George Washington University and graduated With
Honors from the State University of New York at Binghamton with a bachelor’s degree in
political science. He is married to Leslee Behar and has two daughters, Samantha and
Alexandra.
44
Deborah S. Collier is the technology and
telecommunications policy director for Citizens Against
Government Waste (CAGW). She specializes in information
technology (IT) and telecommunications policy, including
cloud computing, IT procurement, information security, data
privacy, broadband spectrum allocations, network neutrality,
cable industry issues, e-commerce, and emerging technologies.
Since joining CAGW in July 2011, Ms. Collier has
authored numerous of educational issue briefs; articles and
blogs on technology and telecommunications policy, including
three reports relating to cloud computing; and a report on the
development of government mobile apps. In 2014, Ms. Collier
joined with CAGW President Tom Schatz in co-authoring
“Telecom Unplugged: Ushering in a New Digital Era.” She
has been a guest on radio and television news programs to discuss Internet taxation and other
technology related issues.
Prior to her work at CAGW, Ms. Collier spent 24 years on Capitol Hill working in IT and
legislative arenas. She worked for Rep. Clarence Miller (R-Ohio) both as a caseworker and
system administrator, and then joined the staff of Rep. Steve Buyer (R-Ind.) as the director of
information technology. From 2005 to 2010, she served on the House Committee on Veterans’
Affairs as the Republican Legislative Director. Ms. Collier was a member of the House Systems
Administrators Association from 1989 until 2005, and served as the organization’s president
from 2002 to 2005.
Ms. Collier holds a Bachelor of Arts (AB) degree in History from Ohio University. She
is married to Kimo Collier, and has a son, Christian.
45
Notes
Introduction
1
“History and Sources of Intellectual Property Law,” National Paralegal College, National Juris
University, 2006-2014,
http://nationalparalegal.edu/public_documents/courseware_asp_files/patents/IntrolP/History.asp.
2
James V. DeLong, “Defending Intellectual Property,” in Adam Thierer and Wayne Crews (eds.), Copy
Fights, Cato Institute, Washington, D.C. 2002, p. 21.
3
“History and Sources of Intellectual Property Law.”
4
Ibid.
5
Orin E. Laney, “Intellectual Property and the Rights of Creative Employees,” 1999,
http://www.orinlaney.com/ipguideweb.html.
6
U.S. Constitution, Article 1, Section 8.
7
William F. Patry, Copyright Law and Practice, The Bureau of National Affairs, Inc., 1994, 2000,
http://digital-law-online.info/patry/patry5.html.
8
“Intellectual Property and the U.S. Economy: Industries In Focus,” U.S. Department of Commerce
Economic and Statistics Administration, U.S. Patent and Trademark Office, March 2012,
http://www.esa.doc.gov/sites/default/files/reports/documents/ipandtheuseconomyindustriesinfocus.pdf.
9
Kevin A. Hassett and Robert J. Shapiro, “What Ideas Are Worth: The Value Of Intellectual Capital And
Intangible Assets In The American Economy,” Sonecon, November 4, 2011,
http://www.sonecon.com/docs/studies/Value_of_Intellectual_Capital_in_American_Economy.pdf.
10
Ibid.
11
Ibid.
12
“Intangible Asset Market Value,” Ocean Tomo Intellectual Capital Equity,
http://www.oceantomo.com/productsandservices/investments/intangible-market-value.
13
Ibid.
14
Samuel F. B. Morse, “Improvement in the Mode of Communicating Information by Signals by the
Application of Electro-Magnetism,” U.S. Patent 1,647 (Filed April 7, 1838, issued June 20, 1840),
http://pdfpiw.uspto.gov/.piw?docid=00001647&SectionNum=1&IDKey=9AEBD2B23335&HomeUrl=ht
tp://patft.uspto.gov/netahtml/PTO/patimg.htm.
15
Thomas A. Edison, “Phonograph or Speaking Machine,” U.S. Patent 200,521 (Filed December 24,
1877, issued February 19, 1878),
http://pdfpiw.uspto.gov/.piw?Docid=00200521&idkey=NONE&homeurl=http%3A%252F%252Fpatft.us
pto.gov%252Fnetahtml%252FPTO%252Fpatimg.htm.
16
Thomas A. Edison, “Electric Lamp,” U.S. Patent 223,898 (Filed November 1, 1879, issued January 27,
1880),
http://pdfpiw.uspto.gov/.piw?docid=00223898&SectionNum=1&IDKey=120EDB9888E8&HomeUrl=htt
p://patft.uspto.gov/netahtml/PTO/patimg.htm.
17
W. H. Carrier, “Apparatus for Treating Air,” U.S. Patent 808,897 (Filed September 16, 1904, issued
January 2, 1906),
http://pdfpiw.uspto.gov/.piw?Docid=808897&idkey=NONE&homeurl=http%3A%252F%252Fpatft.uspto
.gov%252Fnetahtml%252FPTO%252Fpatimg.htm.
18
Philo Taylor Farnsworth, “Television System,” U.S. Patent 1,773,980 (Filed January 7, 1927, issued
August 26, 1930),
http://pdfpiw.uspto.gov/.piw?docid=01773980&SectionNum=1&IDKey=112E145D9051&HomeUrl=htt
p://patft.uspto.gov/netahtml/PTO/patimg.htm.
19
John Bardeen and Walter H. Brattain, “Three-Electrode Circuit Element Utilizing Semiconductive
Materials,” U.S. Patent 2,524,035 (Filed June 17, 1948, issued October 3, 1950),
46
http://pdfpiw.uspto.gov/.piw?docid=02524035&SectionNum=1&IDKey=CAC7A0F27768&HomeUrl=ht
tp://patft.uspto.gov/netahtml/PTO/patimg.htm.
20
Mary Bellis, “The History of Marshmallow Peeps,” Inventors.About.Com, viewed October 8, 2014,
http://inventors.about.com/od/foodrelatedinventions/a/marshmallows_2.htm.
21
William P. Lear, “Magnetic Tape Cartridge,” U.S. Patent 3,350,025 (Filed August 31, 1964, issued
October 31, 1967),
http://pdfpiw.uspto.gov/.piw?docid=03350025&SectionNum=1&IDKey=213694AED136&HomeUrl=htt
p://patft.uspto.gov/netahtml/PTO/patimg.htm.
22
Martin Cooper, Richard W. Dronsuth, Albert J. Mikulski, Charles N. Lynk, Jr., James J. Mikulski, John
F. Mitchell, Roy A. Richardson, and John H. Sangster, “Radio Telephone System,” U.S. Patent 3,906,166
(Filed October 17, 1973, issued September 16, 1975),
http://pdfpiw.uspto.gov/.piw?docid=03906166&SectionNum=1&IDKey=00F208E395BB&HomeUrl=htt
p://patft.uspto.gov/netahtml/PTO/patimg.htm.
23
Gary W. Boone, “Computing Systems CPU,” U.S. Patent 3,757,306 (Filed August 31, 1971, issued
September 4, 1973),
http://pdfpiw.uspto.gov/.piw?docid=03757306&SectionNum=1&IDKey=D20337B029D2&HomeUrl=htt
p://patft.uspto.gov/netahtml/PTO/patimg.htm.
24
Jenna Wortham, “The Unrepentant Bootlegger,” The New York Times, September 27, 2014,
http://www.nytimes.com/2014/09/28/technology/the-unrepentant-bootlegger.html?_r=0.
Chapter 1
25
Ambassador Michael B. G. Froman, “2014 Special 301 Report,” Office of the United States Trade
Representative, April 30, 2014,
http://www.ustr.gov/sites/default/files/USTR%202014%20Special%20301%20Report%20to%20Congres
s%20FINAL.pdf.
26
Ibid.
27
Ibid.
28
“2013 World Intellectual Property Indicators,” World Intellectual Property Organization, WIPO
Economics & Statistics Series, December 9, 2013,
http://www.wipo.int/export/sites/www/freepublications/en/intproperty/941/wipo_pub_941_2013.pdf.
29
“ICE hosts intellectual property theft symposium at National IPR Center,” Immigration and Customs
Enforcement, U.S. Department of Homeland Security, June 3, 2010, https://ice.gov/news/releases/icehosts-intellectual-property-theft-symposium-national-ipr-center.
30
“IP Creates Jobs for America,” U.S. Chamber of Commerce, Global Intellectual Property Center, 2012,
www.IPcreatesjobs.com.
31
“GIPC International IP Index,” U.S. Chamber of Commerce, Global Intellectual Property Center,
January 29, 2014, http://www.theglobalipcenter.com/gipcindex/.
32
Ibid.
33
Gardiner Harris, “India’s Efforts to Aid Poor Worry Drug Makers,” The New York Times, December
29, 2013, http://www.nytimes.com/2013/12/30/health/indias-efforts-to-aid-poor-worrydrugmakers.html?_r=2&.
34
Sally Pipes, “India’s War on Intellectual Property Rights May Bring with it a Body Count,” Forbes,
September 16, 2013, http://www.forbes.com/sites/sallypipes/2013/09/16/indias-war-on-intellectualproperty-rights-may-bring-with-it-a-body-count/.
35
Stephen Ezell and Robert Atkinson, “The Indian Economy at a Crossroads,” The Information
Technology and Innovation Foundation, April 2014, pp. 18-20.
36
Ibid., pp. 104-111.
37
Stephen E. Siwek, “The True Cost of Sound Recording Piracy to the U.S. Economy,” Institute for
Policy Innovation, IPI Center for Technology Freedom, Policy Report 188, August 2007,
http://www.ipi.org/docLib/20120515_SoundRecordingPiracy.pdf.
47
38
Dr. Stan J. Liebowitz, “The Measured Impact of Internet Piracy on the Sales and Revenues of
Copyright Owners,” Center for the Analysis of Property Rights and Innovation, University of Texas at
Dallas, October 1, 2012, p. 17.
39
“To Catch a Fake,” A 20/20 Investigative Report, ABC News, June 13, 2014,
http://abc.go.com/shows/2020/listing/2014-06/13-2020-613-to-catch-a-fake.
40
Ibid.
41
“About Us,” National Intellectual Property Rights Coordination Center,
http://www.iprcenter.gov/about-us.
42
“IPR Center, partners honored at 2014 Intellectual Property Champions Awards,” U.S. Immigration and
Customs Enforcement, April 23, 2014, http://www.ice.gov/news/releases/1404/140423washingtondc.htm.
43
“The Negative Consequences of International Intellectual Property Theft: Economic Harm, Threats to
the Public Health and Safety, and Links to Organized Crime and Terrorist Organizations,” International
Anti-Counterfeiting Coalition, January 2005, http://www.iacc.org/assets/iacc_whitepaper.pdf.
44
“Cyber’s Most Wanted,” Federal Bureau of Investigation, May 20, 2014,
http://www.fbi.gov/wanted/cyber.
45
Spencer Ackerman and Jonathan Kaiman, “Chinese military officials charged with stealing US data as
tensions escalate,” The Guardian, May 20, 2014,
http://www.theguardian.com/technology/2014/may/19/us-chinese-military-officials-cyber-espionage.
46
“Black Market for Counterfeit Goods Rakes in $500 Billion Yearly,” ABC News “Nightline,” October
22, 2013, http://news.yahoo.com/blogs/nightline-fix/black-market-counterfeit-goods-rakes-500-billionyearly-140659855.html.
47
Yvonne P. Mazzulo, “How to spot counterfeit cosmetics,” The Examiner, October 22, 2013,
http://www.examiner.com/article/how-to-spot-counterfeit-cosmetics.
Chapter 2
48
Erwin A. Blackstone, Ph.D., Joseph P. Fuhr, Jr., Ph.D., and Steve Pociask, MA, “The Health and
Economic Effects of Counterfeit Drugs,” American Health & Drug Benefits, June 2014, Vol. 7, No. 4 –
Business, http://www.ahdbonline.com/issues/2014/june-2014-vol-7-no-4/1756-the-health-and-economiceffects-of-counterfeit-drugs.
49
Roger Bate, “The Deadly World of Fake Medicine,” CNN, July 17, 2012,
http://www.cnn.com/2012/07/17/health/living-well/falsified-medicine-bate/.
50
Ibid.
51
Ibid.
52
Paul Toscano, “The Dangerous World of Counterfeit Prescription Drugs,” USA Today, October 7,
2011, http://usatoday30.usatoday.com/money/industries/health/drugs/story/2011-10-09/cnbcdrugs/50690880/1.
53
Ibid.
54
“General Information on Counterfeit Medicines,” World Health Organization,
http://www.who.int/medicines/services/counterfeit/overview/en/.
55
“Federal Food, Drug, and Cosmetic Act (FD&C Act),” Regulatory Information, U.S. Food and Drug
Administration, October 2014,
http://www.fda.gov/regulatoryinformation/legislation/federalfooddrugandcosmeticactfdcact/
fdcactchaptersiandiishorttitleanddefinitions/ucm086297.htm.
56
Ibid.
57
Ibid.
58
“Educational Resources: Buying Medicine from Outside the United States,” U.S. Food and Drug
Administration, July 14, 2014, http://www.fda.gov/Drugs/ResourcesForYou/ucm078922.htm.
59
“Is It Legal for Me to Personally Import Drugs?” U.S. Food and Drug Administration, “About FDA,”
July 14, 2014, http://www.fda.gov/AboutFDA/Transparency/Basics/ucm194904.htm.
48
60
“Counterfeit Drug Task Force Report,” U.S. Food and Drug Administration, October 2003,
http://www.fda.gov/Drugs/DrugSafety/ucm174388.htm.
61
Ibid.
62
“Reimportation of All Prescription Drugs for Human Use,” Import Alert 66-14, U.S. Food and Drug
Administration, August 19, 2014, http://www.accessdata.fda.gov/cms_ia/importalert_177.html.
63
Ibid.
64
Ibid.
65
“4 Deaths Tied to Counterfeit Drugs Dispensed at Ontario, Canada Pharmacy,” The Partnership for
Safe Medicines, September 2005, http://www.safemedicines.org/2005/09/4-deaths-tied-to-counterfeitdrugs-dispensed-at-ontario-canada-pharmacy.html.
66
“Chief Coroner Makes Recommendations Resulting from Investigation into 11 Hamilton Deaths,”
Ministry of Community Safety and Correctional Services, January 9, 2006,
http://news.ontario.ca/archive/en/2006/01/09/Chief-Coroner-makes-recommendations-resulting-frominvestigation-into-11-Hamilto.html.
67
Melanie Haiken, “Up To 77 Percent Of Viagra Bought Online May Be Fake, And Possibly Dangerous,
Research Shows,” Forbes, September 12, 2013,
http://www.forbes.com/sites/melaniehaiken/2013/09/12/buying-viagra-online-its-very-likely-fake-andpossibly-dangerous-new-data-say/.
68
Ibid.
69
Ibid.
70
“Internet Drug Outlet Identification Program, Progress Report for State and Federal Regulators,”
National Association of Boards of Pharmacy, July 2013,
https://awarerx.s3.amazonaws.com/system/redactor_assets/documents/237/NABP_Internet_Drug_Outlet_
Report_July2013.pdf.
71
Jocelyne Sambira, “Counterfeit Drugs Raise Africa’s Temperature,” Africa Renewal, May 2013, p. 5,
http://www.un.org/africarenewal/magazine/may-2013/counterfeit-drugs-raise-africa%E2%80%99stemperature.
72
Gardiner Harris, “Low-Cost Drugs in Poor Nations Get a Lift in Indian Court,” The New York Times,
April 1, 2013, http://www.nytimes.com/2013/04/02/business/global/top-court-in-india-rejects-novartisdrug-patent.html?pagewanted=all&_r=2&.
73
Ibid.
74
Penelope Macrae, “Roche Drops India Patent for Breast-Cancer Drug,” Fox News, August 17, 2013,
http://www.foxnews.com/world/2013/08/17/roche-drops-india-patent-for-breast-cancer-drug/.
75
Harris, “Low-Cost Drugs in Poor Nations Get a Lift in Indian Court.”
76
Marcia Crosse, Director, Health Care, Government Accountability Office, “Internet Pharmacies: Most
Rogue Sites Operate from Abroad, and Many Sell Counterfeit Drugs,” Testimony before the House
Energy and Commerce Subcommittee on Oversight and Investigations, February 27, 2014,
http://www.gao.gov/assets/670/661177.pdf.
77
Howard Sklamberg, Deputy Commissioner for Global Regulatory Operations and Policy, Food and
Drug Administration, Department of Health and Human Services, “Counterfeit Drugs: Fighting Illegal
Supply Chains,” Testimony before the House Energy and Commerce Subcommittee on Oversight and
Investigations, February 27, 2014, http://www.fda.gov/newsevents/testimony/ucm387449.htm.
78
Ibid.
79
Ibid.
80
Ibid.
81
“Guilty Pleas in Counterfeiting Cases,” Intellectual Property Spotlight, Office of the United States
Intellectual Property Enforcement Coordinator, December-February 2014,
http://www.whitehouse.gov/sites/default/files/omb/IPEC/spotlight/ipec_spotlight_dec_2013_feb_2014.pd
f.
82
Ibid.
49
83
“Orange County Man Charged with Selling Counterfeit Sexual Dysfunction Drugs over the Internet,”
Immigration and Customs Enforcement News Releases, March 11, 2013,
http://www.ice.gov/news/releases/1303/130311santaana.htm.
84
Ibid.
85
“To Catch a Fake,” 20/20.
86
Ibid.
87
Ibid.
88
Ibid.
89
Sklamberg, “Counterfeit Drugs: Fighting Illegal Supply Chains.”
90
Lynn C. Klotz, Ph.D., “What Is The Real Drug Development Costs for Very Small Biotech
Companies?” Genetic Engineering Biotechnology News, January 16, 2014,
http://www.genengnews.com/insight-and-intelligence/what-is-the-real-drug-development-cost-for-verysmall-biotech-companies/77900012/.
91
“Pharmaceutical Patents: The Value of Pharmaceutical Patents & Strong Intellectual Property
Protection,” Pharmaceutical Research and Manufacturers of America,
http://www.innovation.org/documents/File/Pharmaceutical_Patents.pdf.
92
Blackstone, Fuhr, and Pociask, “The Health and Economic Effects of Counterfeit Drugs.”
93
Ibid.
Chapter 3
94
Jorge Lopez, “Bootleg Movies Lands Augusta Man In Jail,” WRDW-TV, CBS Channel 12 News,
August 8, 2014, http://www.wrdw.com/home/headlines/Bootleg-movies-lands-Augusta-man-in-jail-270423901.html.
95
Nic Healey, “Game of Thrones finale piracy hits 2 petabytes in 12 hours,” C|Net, June 16, 2014,
http://www.cnet.com/news/game-of-thrones-finale-piracy-hits-2-petabytes-in-12-hours/. According to
Tru Optik, “Game of Thrones” has been subject to 289.9 million illegal downloads, more than any other
television program; http://truoptik.com/. NB: A petabyte of data contains enough capacity to store
233,000 DVDs.
96
“Buyers Bulletin: Tape Piracy…Everyone’s Problem,” A Public Collectors Reprint, 1974,
www.publiccollectors.org/TapePiracy.html.
97
Callie Taintor, “Chronology: Technology and the Music Industry,” PBS, “FrontLine,” May 27, 2004,
http://www.pbs.org/wgbh/pages/frontline/shows/music/inside/cron.html.
98
Don Cusic, Gregory K. Faulk, and Robert P. Lambert, “Technology and Music Piracy: Has the
Recording Industry Lost Sales?” Studies in Popular Culture, 28.1, Popular/American Culture Association
in the South, October 2005, http://www.pcasacas.org/SiPC/28.1/Cusic.pdf.
99
“Napster Shut Down,” ABC News, July 27, 2000,
http://abcnews.go.com/Technology/story?id=119627.
100
http://www.rhapsody.com/napster.
101
Paul Gil, “Torrents 101: How Torrent Downloading Works: Part 1) An Overview of BitTorrent P2P
File Sharing,” About.com, “Internet for Beginners,” April, 2014,
http://netforbeginners.about.com/od/peersharing/a/torrenthandbook.htm.
102
Ibid.
103
Ibid.
104
David Price, PhD., “Technical Report: An Estimate of Infringing Use of the Internet,” Envisional,
January 2011, http://documents.envisional.com/docs/Envisional-Internet_Usage_Report-Summary.pdf.
105
Angela Watercutter, “The Most Pirated Movies of 2013 – And Why Piracy Isn’t Hurting the Box
Office,” Wired, January 2, 2014, http://www.wired.com/2014/01/most-pirated-films-2013/.
106
Ibid.
50
107
Kat Smith, “Chloe Moretz Tells Of Frustration With Film Piracy & No More ‘Kick-Ass,’” The
Hollywood News, August 25, 2014, http://www.thehollywoodnews.com/2014/08/25/chloe-moretz-tellsof-frustration-with-film-piracy-no-more-kick-ass/.
108
Måns Svensson, Stefan Larsson, and Marcin de Kaminski, “Professionalization, Gender and
Anonymity in the Global File Share Community,” The University of Lund, March 2013,
http://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=3615165&fileOId=3615249.
109
Ibid.
110
Steven Caldwell Brown, “What Makes People Pirate?” TechCentral, August 5, 2014,
http://www.techcentral.co.za/what-makes-people-pirate/50127/.
111
Chris Castle, “The MTP Interview: An Inconvenient Truth: Songwriters Guild President Rick Carnes
talks about the effect of piracy on American songwriters,” Music Technology Policy, March 10, 2012,
http://musictechpolicy.wordpress.com/2012/03/10/an-inconvenient-truth-songwriters-guild-presidentrick-carnes-talks-about-the-effect-of-piracy-on-american-songwriters/.
112
David Lowery, “Letter to Emily White at NPR All Songs Considered,” The Trichordist, June 18, 2012,
http://thetrichordist.com/2012/06/18/letter-to-emily-white-at-npr-all-songs-considered/.
113
Michael Schlesinger, “Testimony before the 301 Committee, 2010 Special 301 Hearing,” International
Intellectual Property Alliance, March 2, 2011,
http://www.iipa.com/pdf/Special301RequesttoTestifyandStatement030211.pdf.
114
Wortham, “The Unrepentant Bootlegger.”
115
Liye Ma, Alan Montgomery, Param Vir Singh, and Michael D. Smith, “An Empirical Analysis of the
Impact of Pre-Release Movie Piracy on Box-Office Revenue,” Carnegie Mellon University, July 8, 2014,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1782924.
116
Nick Simmons, “Gene Simmons: ‘Rock Is Finally Dead,’” Esquire, September 4, 2014,
http://www.esquire.com/blogs/culture/gene-simmons-future-of-rock.
117
Ibid.
118
“United States Copyright Office: A Brief Introduction and History,” Circular 1a, U.S. Copyright
Office, Library of Congress, http://copyright.gov/circs/circ1a.html.
119
“Overview of the Copyright Office,” United States Copyright Office, Library of Congress,
http://copyright.gov/about/.
120
“Copyright in General,” United States Copyright Office, Library of Congress,
http://copyright.gov/help/faq/faq-general.html#register.
121
“What Does Copyright Protect?” United States Copyright Office, Library of Congress,
http://copyright.gov/help/faq/faq-protect.html#website.
122
Greg Sandoval, “Indie Filmmakers: Piracy and Google Threaten Us,” C|Net, September 20, 2010,
http://www.cnet.com/news/indie-filmmakers-piracy-and-google-threaten-us/.
123
Laura Sydell, “Feeding Pirates: When Legit Companies Advertise on Shady Sites,” National Public
Radio, “All Tech Considered,” July 1, 2010,
http://www.npr.org/blogs/alltechconsidered/2010/07/01/128255612/feeding-pirates-when-legitcompanies-advertise-on-shady-sites.
124
Ibid.
125
Laura Sydell, “Pirates Turn Deaf Ear to Independent Filmmaker,” National Public Radio, “All Tech
Considered,” November 30, 2010,
http://www.npr.org/blogs/alltechconsidered/2010/12/01/131677403/pirates-turn-deaf-ear-to-independentfilmmaker.
126
Ibid.
127
Ibid.
128
John Biggs, “Meet Tom Lowe, The Filmmaker Who Talked Back to The Pirate Bay,” TechCrunch,
June 9, 2012, http://techcrunch.com/2012/06/09/meet-the-filmmaker-who-talked-back-to-the-pirate-bay/.
129
Wortham, “The Unrepentant Bootlegger.”
130
Diana Lodderhose, “Movie Piracy: Threat to the Future of Films Intensifies,” The Guardian, July 17,
2014, http://www.theguardian.com/film/2014/jul/17/digital-piracy-film-online-counterfeit-dvds.
51
131
Ibid.
Samuel Gibson, “Piracy Study Shows Illegal Downloaders More Likely to Pay for Films than Music,”
The Guardian, May 6, 2014, http://www.theguardian.com/technology/2014/may/06/piracy-film-musicstudy-pay-illegal-download-damage.
133
Colin Dixon, “Are 4B illegal video downloads in 1H2014 really that bad?” nScreenMedia, August 25,
2014, http://www.nscreenmedia.com/4b-illegal-video-downloads-1h2014-bad/.
134
Ibid.
135
Karsten Strauss, “TV and Film Piracy: Threatening an Industry?” Forbes, March 6, 2013,
http://www.forbes.com/sites/karstenstrauss/2013/03/06/tv-and-film-piracy-threatening-an-industry/.
136
“Brubaker,” IMDb.
137
“Looking Back,” Lancaster Eagle-Gazette, August 16, 2008, p. A-5,
http://pqasb.pqarchiver.com/lancastereaglegazette/doc/442544629.html?FMT=ABS&FMTS=ABS:FT&d
ate=Aug+16%2C+2008&author=&pub=Lancaster+Eagle++Gazette&edition=&startpage=&desc=Looking+Back.
138
“In Production,” The Ohio Film Office, July 14, 2014,
http://development.ohio.gov/FilmOffice/InProduction.html.
139
Adrian McDonald, “2013 Feature Film Production Report,” Film L.A. Inc., 2014,
http://www.hollywoodreporter.com/sites/default/files/custom/Embeds/2013%20Feature%20Study%20Co
rrected%20no%20Watermark%5B2%5D.pdf.
140
Ibid.
141
Dorothy Pomerantz, “Cameras Rolling – Away From California: State Falls to Fourth in Film
Production,” Forbes, March 6, 2014, http://www.forbes.com/sites/dorothypomerantz/2014/03/06/localfilm-industry-in-deep-trouble-in-california/.
142
“Film Industry Generates $5.1 Billion In Economic Impact,” State of Georgia Office of
Communications, August 5, 2014, http://www.georgia.org/newsroom/press-releases/film-industrygenerates-5-1-billion-economic-impact/.
143
Dawn Prestwich, “Piracy Endangers TV Renewals and Jobs,” (Guest Column), Variety, October 6,
2014, http://variety.com/2014/tv/news/piracy-endangers-tv-renewals-and-jobs-says-killing-writer-guestcolumn-1201322657/.
144
Ibid.
145
Ibid.
146
John Biggs, “A Pirate’s Life For Me: Police Bust Hungarian Movie Ring,” TechCrunch, October 10,
2011, http://techcrunch.com/2011/10/10/a-pirates-life-for-me-police-bust-hungarian-movie-ring/.
147
Francis D’Sa, “The Pirate Bay Doubles Traffic Despite Ban,” Deccan Chronicle, July 20, 2014,
http://www.deccanchronicle.com/140720/technology-latest/article/pirate-bay-doubles-traffic-despite-ban.
148
“Learn About Copyright on YouTube, What Is Copyright,” Google, July 23, 2014,
https://support.google.com/youtube/answer/2797466?hl=en.
149
Jack Marshall, “Ads Appear Before Unlicensed Content on YouTube, Too,” The Wall Street Journal,
May 8, 2014, http://blogs.wsj.com/cmo/2014/05/08/ads-appear-before-unlicensed-content-on-youtubetoo/?KEYWORDS=Video+Piracy.
150
“For Students Doing Reports,” Recording Industry Association of America, August 14, 2014,
http://www.riaa.com/faq.php.
151
Kate Greene, “Preventing Movie Piracy,” Technology Review, Massachusetts Institute of Technology,
July 5, 2006, http://www.technologyreview.com/news/406063/preventing-movie-piracy/.
152
Erich Schwartzel, “Spy Cameras, Secret Audio Help Fight Movie Piracy,” The Wall Street Journal,
August 12, 2013,
http://online.wsj.com/news/articles/SB10001424127887324769704579008640314353088.
153
Nick Bilton, “Internet Pirates Will Always Win,” The New York Times, August 4, 2012,
http://www.nytimes.com/2012/08/05/sunday-review/internet-pirates-will-always-win.html?_r=0.
154
Wheretowatch.org.
155
“Find Music,” Music Matters, http://whymusicmatters.com/find-music.
52
132
156
No Electronic Theft (NET) Act, Public Law 105-147, 105th Congress, 111 STAT. 2678, Enacted
December 16, 1997, http://www.gpo.gov/fdsys/pkg/PLAW-105publ147/pdf/PLAW-105publ147.pdf.
157
Digital Millennium Copyright Act, Public Law 105-304, 105th Congress, 112 STAT. 2860, Enacted
October 28, 1998, http://www.gpo.gov/fdsys/pkg/PLAW-105publ304/pdf/PLAW-105publ304.pdf.
158
“Digital Piracy in the 21st Century,” Bill of Rights in Action, Winter 2008 (Volume 23, No. 4),
Constitutional Rights Foundation, http://www.crf-usa.org/bill-of-rights-in-action/bria-23-4-b-digitalpiracy-in-the-21st-century.
159
Bruce Boyden, “The Failure of the DMCA Notice and Takedown System: A Twentieth Century
Solution to a Twenty-First Century Problem,” Center for the Protection of Intellectual Property, George
Mason University School of Law, December 2013, http://cpip.gmu.edu/wpcontent/uploads/2013/08/Bruce-Boyden-The-Failure-of-the-DMCA-Notice-and-Takedown-System1.pdf.
160
Cary Sherman, “Google’s 100 Million Notices,” The Hill, January 13, 2014,
http://thehill.com/blogs/ballot-box/195107-googles-100-million-notices.
161
Maria Schneider, “Section 512 of Title 17,” Testimony before the House Judiciary Subcommittee on
Courts, Intellectual Property and the Internet, March 13, 2014,
http://judiciary.house.gov/_cache/files/7aa84910-171e-4f3e-82fc-b2cef9a43c3e/031314-testimony--schneider.pdf.
162
Ibid.
163
“HSI Fresno seizes nearly $1 million worth of bootleg movies and music in probe targeting
counterfeiting,” U.S. Immigration and Naturalization Service, April 26, 2012,
http://www.ice.gov/news/releases/1204/120426fresno.htm.
164
Ibid.
165
Paul Williams, “Music Licensing Under Title 17 – Part Two,” Testimony before the House Judiciary
Subcommittee on Courts, Intellectual Property and the Internet, June 25, 2014,
http://judiciary.house.gov/_cache/files/5b77d14c-1ea5-491a-a508-5167e5d3d95c/062514-music-licensept-2-testimony-ascap.pdf.
166
Ibid.
167
Daniel Castro, “Targeting Websites Dedicated to Stealing American Intellectual Property,” Testimony
before the Senate Judiciary Committee, February 12, 2011, http://www.itif.org/files/2011-coicatestimony.pdf.
Chapter 4
168
“History of Bottling,” The Coca-Cola Company, http://www.coca-colacompany.com/ourcompany/history-of-bottling.
169
Ibid.
170
“Trademarks,” U.S. Patent and Trademark Office, http://www.uspto.gov/inventors/trademarks.jsp.
171
Ibid.
172
Cristina Lourosa-Ricardo, “The Latest in Counterfeit Goods,” The Wall Street Journal, December 4,
2011, http://online.wsj.com/news/articles/SB10001424052970204012004577070190846665320.
173
Ibid.
174
Kirstan Conley, “Cops Bust Largest Fake Beauty Supplies Ring in U.S.,” New York Post, March 7,
2014, http://nypost.com/2014/03/07/pair-accused-of-stocking-stores-with-bogus-beauty-products/.
175
Ibid.
176
Elizabeth Gasiorowski Denis, “Crackdown on Counterfeiting,” International Organization for
Standardization, January 8, 2014,
http://www.iso.org/iso/home/news_index/news_archive/news.htm?refid=Ref1809.
177
Coral Garnick, “Counterfeit Seahawks merchandise can be hard to tackle,” The Seattle Times, August
20, 2014, http://seattletimes.com/html/sports/2024355360_seahawksscamsxml.html.
178
Ibid.
179
Ibid.
53
180
“Protecting Your Trademark: Enhancing Your Rights Through Federal Registration,” U.S. Patent and
Trademark Office, Printed 2014, http://www.uspto.gov/trademarks/basic/BasicFacts.pdf.
181
Ibid.
182
Dave Smith, “4 Tips For Protecting Your Trademark,” Inc., June 2011,
http://www.inc.com/guides/201106/4-tips-for-protecting-your-trademark.html.
183
Jason Gillikin, “How Can a Business Protect Their Brand & Trademark from The Internet?” Houston
Chronicle, Viewed October 8, 2014, http://smallbusiness.chron.com/can-businesses-protect-brandtrademark-internet-2254.html.
184
Darren Dahl, “Small-Business Guide: Intellectual Property,” The New York Times, August 6, 2009,
http://www.nytimes.com/2009/08/06/business/smallbusiness/06guide.html?_r=0&adxnnl=1&pagewanted
=print&adxnnl=1409152996-ARNhziOoft1jKdgdLISpQ.
185
Tiffany Bozic, “Crazy Blatant,” Tumblr, January 13, 2014,
http://tiffanybozic.tumblr.com/post/73222230661/crazy-blatant-this-lame-clothing-company-romwe.
186
Ibid.
187
Authors’ note: Comments found on Tidebuy.com for a dress attributed on the site to be designed by
Liz Fields, using a photograph from her business website. Screenshots of these pages were provided by
Liz Fields to CAGW on September 16, 2014. In addition, screenshots provided by Liz Fields of a Google
search on the term “Liz Fields bridesmaids discount” posted the discount purchase price for one of her
designs at $254.00. According to Fields, the actual wholesale price of this gown is $489.00, and the
manufacturer’s retail price is $1,079.
188
Liz Fields, “Commentary: Knockoffs Hurt Firms, Workers and Customers,” Courier-Post, Cherry
Hill, New Jersey, March 28, 2014,
http://www.courierpostonline.com/story/opinion/columnists/2014/03/29/commentary-knockoffs-hurtfirms-workers-and-customers/6963183/.
189
“Tobacco Smoking (NDSHS 2013 Key Findings),” Australian Institute of Health and Welfare, 2013,
http://www.aihw.gov.au/alcohol-and-other-drugs/ndshs/2013/tobacco/.
190
Ibid.
191
Harriet Alexander, “Plunge in Smoking Attributed to Plain Packaging,” The Sydney Morning Herald,
July 17, 2014, http://www.smh.com.au/federal-politics/political-news/plunge-in-smoking-attributed-toplain-packaging-20140716-ztqht.html.
192
Lauren Wilson, “More Australian Teenagers Are Choosing not to Drink and Smoke, According To A
Major New Report,” News Corp Australian Network, July 17, 2014,
http://www.news.com.au/national/more-australian-teenagers-are-choosing-not-to-drink-and-smokeaccording-to-a-major-new-report/story-fncynjr2-1226991404242.
193
Chris Vindurampulle, “Plain Packaging for Alcohol May Happen Sooner Than You Think,”
Association of Corporate Counsel, August 5, 2014,
http://www.lexology.com/library/detail.aspx?g=d1b40902-3996-4360-8654-af2e3ca0b1ad.
194
Isaac Davison, “Tobacco Firms Warn MPs Over Plain Packaging,” The New Zealand Herald, May 15,
2014, http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11254992.
195
Stephanie March, “India Urged to Follow Australian Lead on Cigarette Plain-Packaging,” ABC News
Australia, October 29, 2013, http://www.abc.net.au/news/2013-10-28/an-india-urged-to-follow-australianlead-on-plain-packaging-for/5049380.
196
“France Moves Towards Cigarette Plain Packaging,” World Intellectual Property Review, February 7,
2014, http://www.worldipreview.com/news/france-moves-towards-cigarette-plain-packaging-6867.
197
Wendell Roelf, “South Africa plans plain cigarette packaging by 2014: minister,” Reuters, July 24,
2014, http://www.reuters.com/article/2014/07/24/us-safrica-tobacco-idUSKBN0FT1QI20140724.
198
Paul Burstow, MP (Lib Dem), Kevin Barron, MP (Lab), Bob Blackman, MP (Con), All Party
Parliamentary Group on Smoking and Health, London, SW1, “The Government Should not Delay on
Introducing Plain Packaging,” The Telegraph, Letter to the Editor, August 8, 2014,
http://www.telegraph.co.uk/comment/letters/11019990/The-Government-should-not-delay-onintroducing-plain-packaging.html.
54
199
Davison, “Tobacco Firms Warn MPs Over Plain Packaging.”
Andre Walker, “Watch: Australian Plain Packaging Leads to Explosion in Fake Cigarette Sales,”
Breitbart - London, July 24, 2014, http://www.breitbart.com/Breitbart-London/2014/07/24/AustralianPlain-Packaging-Leads-To-Explosion-In-Fake-Cigarettes.
201
Guy Bentley, “Mars Lawyers Slam Tobacco Plain Packaging,” City A.M., July 24, 2014,
http://www.cityam.com/1406214295/mars-lawyers-slam-tobacco-plain-packaging.
202
Annie-Rose Harrison-Dunn, “Plain Packaging Pay Out To Mars Would ‘Certainly Not Be Trivial’,
says Institute of Economic Affairs,” Confectionery News, July 30, 2014,
http://www.confectionerynews.com/Regulation-Safety/Mars-complaint-over-tobacco-plain-packagingunearthed.
203
Tatiana Schlossberg, “Wine Dealer Sentenced to 10 Years for Defrauding Clients,” The New York
Times, August 7, 2014, http://www.nytimes.com/2014/08/08/nyregion/wine-dealer-sentenced-to-10years-for-defrauding-clients.html?_r=2.
204
Ben Goldstein, “The Man Who Duped Millionaires Into Paying Big Bucks For Fake Wine,” National
Public Radio, December 13, 2013, http://www.npr.org/blogs/thesalt/2013/12/18/255241685/the-manwho-duped-millionaires-into-paying-big-bucks-for-fake-wine.
200
Chapter 5
205
“Alexander Graham Bell: Telephone Inventor,” Lemelson Center for the Study of Invention and
Innovation, Smithsonian National Museum of American History,
http://invention.smithsonian.org/centerpieces/iap/inventors_bel.html.
206
Henry M. Paynter, “The First Patent,”
https://www.me.utexas.edu/~longoria/paynter/hmp/The_First_Patent.html.
207
“Patents by Country, State and Year,” U.S. Patent and Trademark Office (PTO), December, 2013,
www.uspto.gov/web/offices/ac/ido/oeip/taf/cst_all.htm.
208
“U.S. Patent Statistics Chart, Calendar Years 1963 – 2013,” U.S. Patent and Trademark Office, Patent
Technology Monitoring Team (PTMT), August 15, 2014,
http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm.
209
“General Information Concerning Patents,” U.S. Patent and Trademark Office, November 2011,
http://www.uspto.gov/patents/resources/general_info_concerning_patents.jsp#heading-24.
210
Ibid.
211
Ibid.
212
Elizabeth Kim, “Priceline founder looks to innovate licensing,” Stamford Advocate, August 18, 2014,
p. 1, http://www.stamfordadvocate.com/default/article/Priceline-founder-looks-to-innovate-patent5692277.php.
213
Marshall Phelps and David Kline, “Building a white-hat brand in the patent industry,” Intellectual
Asset Management Magazine, Issue 67, September/October 2014, p. 43, http://www.iammagazine.com/Magazine/Issue/67.
214
B. Zorina Khan, Ph.D., “Trolls and Other Patent Inventions: Economic History and the Patent
Controversy in the Twenty-First Century,” Bowdoin College, Brunswick, Maine, and National Bureau of
Economic Research, September 2013, p. 9, http://cpip.gmu.edu/wp-content/uploads/2013/09/KhanZorina-Patent-Controversy-in-the-21st-Century.pdf.
215
Tom Habert, “Qualcomm Takes on the World,” Electronics 360, February 11, 2013,
http://electronics360.globalspec.com/article/8/qualcomm-takes-on-the-world, and
http://investor.qualcomm.com/results.cfm?Quarter=&Year=2014.
216
“Earnings Release FY 14, Q4,” Investor Relations, Microsoft,
http://www.microsoft.com/Investor/EarningsAndFinancials/Earnings/SegmentResults/S1/FY14/Q4/Perfo
rmance.aspx.
217
“Ownership/Assignability of Patents and Applications,” PTO,
http://www.uspto.gov/web/offices/pac/mpep/s301.html.
55
218
“Organizations for Inventors,” PTO, inventorseye, vol. 2, issue 6, December 2011,
http://www.uspto.gov/inventors/independent/eye/201112/orgs.jsp.
219
Neil Kane, “Patents for Sale: How to Separate the Valuable from the Worthless,” Forbes, May 22,
2014, http://www.forbes.com/sites/neilkane/2014/05/22/a-modest-proposal-for-licensing-patents/.
220
Ibid.
221
Walter D. Valdivia, “University Start-ups: Critical for Improving Technology Transfer,” The
Brookings Institution, November 20, 2013, p. 9,
http://www.brookings.edu/research/papers/2013/11/university-start-ups-technology-transfer-valdivia.
222
Ibid., p. 6.
223
Richard Perez-Pena, “Patenting Their Discoveries Does Not Pay Off for Most Universities, a Study
Says,” The New York Times, November 20, 2013,
http://www.nytimes.com/2013/11/21/education/patenting-their-discoveries-does-not-pay-off-for-mostuniversities-a-study-says.html?_r=0.
224
Valdivia, pp. 15-17.
225
“Overview, How PatentBooks Work,” PatentBooks, http://patentbooksinc.com/evaluation-criteria/.
226
Ibid.
227
Ibid.
228
“FAQ’s,” PatentBooks, http://patentbooksinc.com/faq/.
229
Gene Quinn, “A Conversation with Priceline.com Founder Jay Walker,” IP Watchdog, July 13, 2014,
http://www.ipwatchdog.com/2014/07/13/conversation-with-priceline-com-founder-jay-walker/id=50338/.
230
Patent Properties, Media Center, http://www.patentproperties.com/mediacenter.html.
231
“Introducing the United States Patent Utility,” Patent Properties,
http://www.patentproperties.com/patentinnovations.html.
232
Ibid.
233
Kim, p. 1.
234
Ibid.
235
Ibid.
236
“Geoffrey Barker, co-founder and COO, RPX Corp.” Smart Business, July 1, 2012,
http://www.sbnonline.com/article/geoffrey-barker-co-founder-and-coo-rpx-corp/.
237
Ibid.
238
“Reducing Patent Risk,” RPX Corporation, http://www.rpxcorp.com/rpx-services/.
239
“Defensive Patent Acquisitions,” RPX Corporation, http://www.rpxcorp.com/rpx-services/rpxdefensive-patent-acquisitions/.
240
Stuart Newman, “Avoiding Litigation Thanks to Article One and RPX Corp,” Forbes, October 24,
2012, http://www.forbes.com/sites/mergermarket/2012/10/24/avoiding-litigation-thanks-to-article-onepartners-and-rpx-corp/.
241
“Reducing Patent Risk,” RPX Corporation.
242
“Welcome to RPX Insurance Services,” RPX Corporation, http://rpxcorp.com/insurance.
243
“FTC Seeks to Examine Patent Assertion Entities and Their Impact on Innovation, Competition,”
Federal Trade Commission, September 27, 2013, http://www.ftc.gov/news-events/pressreleases/2013/09/ftc-seeks-examine-patent-assertion-entities-their-impact.
244
Ibid.
245
Melissa Lipman, “FTC Patent Troll Study to Disappoint Some, Wright Says,” Law360, September 4,
2014, http://www.law360.com/articles/573222/ftc-patent-troll-study-to-disappoint-some-wright-says.
246
Ibid.
247
“Intellectual Property: Assessing Factors That Affect Patent Infringement Litigation Could Help
Improve Patent Quality,” U.S. Government Accountability Office, GAO-13-465, August 22, 2013,
http://www.gao.gov/assets/660/657103.pdf.
248
Ibid.
249
Ibid.
250
Khan, p. 13.
56
251
Ibid., pp. 13-14.
Ibid., p. 14.
253
Ibid.
254
Maureen K. Ohlhausen, Commissioner, “Antitrust Enforcement in China – What Next?” Second
Annual GCR Live Conference, September 16, 2014, p. 9, http://www.ftc.gov/publicstatements/2014/09/antitrust-enforcement-china-what-next-second-annual-gcr-live-conference.
255
Ibid., p. 12.
256
Ibid.
257
Joshua D. Wright, Commissioner, “Does the FTC Have a New IP Agenda?” Remarks at the 2014
Milton Handler Lecture, “Antitrust in the 21st Century,” p. 8, http://www.ftc.gov/publicstatements/2014/03/does-ftc-have-new-ip-agenda-remarks-2014-milton-handler-lecture-antitrust.
258
“Competing Interests in China’s Competition Law Enforcement: China’s Anti-Monopoly Law
Application and the Role of Industrial Policy,” U.S. Chamber of Commerce, September, 2014, p. 77,
https://www.uschamber.com/report/competing-interests-chinas-competition-law-enforcement-chinas-antimonopoly-law-application.
259
Wright, p. 15.
260
H. Report #112-98, to accompany H.R. 1249, America Invents Act, reported on June 1, 2012, p. 40,
https://beta.congress.gov/112/crpt/hrpt98/CRPT-112hrpt98-pt1.pdf.
261
Ibid.
262
Deborah L. Lu, Smitha B. Uthaman, Ph.D., Thomas J. Kowalski, “Summary of the America Invents
Act,” National Law Review, April 12, 2012, http://www.natlawreview.com/article/summary-americainvents-act.
263
H. Report #113-279, to accompany H.R. 3309, Innovation Act, reported on December 2, 2013, p. 16,
https://beta.congress.gov/113/crpt/hrpt279/CRPT-113hrpt279.pdf.
264
Khan, p. 1.
265
“Disruptor 50,” 2013 List, CNBC, http://www.cnbc.com/id/100739744.
266
“2014 CNBC’s Disruptor 50,” CNBC, http://www.cnbc.com/id/101734664.
267
Mark Twain, A Connecticut Yankee in King Arthur’s Court, Charles L. Webster & Company, New
York, 1889, p. 107, http://www.gutenberg.org/files/86/86-h/86-h.htm.
252
Chapter 6
268
Lily Kuo, “Chinese Counterfeiters Are Selling the iPhone 6 Before it Has Even Been Released,” MSN
News, June 13, 2014, http://news.msn.com/science-technology/chinese-counterfeiters-are-selling-theiphone-6-before-it-has-even-been-released-1.
269
Ibid.
270
Thomas Halleck, “Chinese iPhone 6 Clones Feature 4.7-Inch Display, Run Android,” International
Business Times, July 18, 2014, http://www.ibtimes.com/chinese-iphone-6-clones-feature-47-inch-displayrun-android-1632606.
271
Daisuke Wakabayashi and Wayne Ma, “Apple Sells Over 10 Million New iPhones in First Weekend,”
The Wall Street Journal, September 22, 2014, http://online.wsj.com/articles/apple-sells-10-million-newiphones-on-first-weekend-1411389254?mod=dist_smartbrief.
272
Ibid.
273
Associated Press, “Feds Say Hackers Targeted Microsoft, Game Makers,” The News Tribune,
September 30, 2014, http://www.thenewstribune.com/2014/09/30/3407324/feds-say-hackers-targetedmicrosoft.html?sp=/99/296/358/.
274
Josh Lowensohn, “iPhone-related Death in China Could Be Linked to Fake Charger,” C|Net, July 18,
2013, http://www.cnet.com/news/iphone-related-death-in-china-could-be-linked-to-fake-charger/.
275
Angela Moscaritolo, “Apple Offering USB Charger Trade-in Deal Following Electrocution Death,”
PC Magazine, August 6, 2013, http://www.pcmag.com/article2/0,2817,2422748,00.asp.
276
Ibid.
57
277
Chuck Goudie, “I-Team: Uncovering the Dangers of Fake Electronics,” ABC 7 News, Chicago,
Illinois, May 14, 2013, http://abc7chicago.com/archive/9101300/.
278
Ibid.
279
Anjali Athavaley, “Beware Unsafe Holiday Lights,” The Wall Street Journal, December 17, 2009,
http://online.wsj.com/articles/SB10001424052748704541004574600132801477824.
280
Mark Huffman, “Some Holiday Lights Bear Bogus UL Label,” Consumer Affairs, December 21, 2010,
http://www.consumeraffairs.com/news04/2010/12/some-holiday-lights-bear-bogus-ul-label.html.
281
“Nuclear Safety and Health: Counterfeit and Substandard Products Are a Governmentwide Concern,”
U.S. General Accounting Office, GAO/RCED-91-6, October 16, 1990,
http://www.gao.gov/assets/150/149878.pdf.
282
Ibid.
283
“Defense Industrial Base Assessment: Counterfeit Electronics,” U.S. Department of Commerce,
Bureau of Industry and Security, Office of Technology Evaluation, January 2010, p. i-ii,
http://www.bis.doc.gov/index.php/forms-documents/doc_view/37-defense-industrial-base-assessment-ofcounterfeit-electronics-2010.
284
“Space and Missile Defense Acquisitions: Periodic Assessment Needed to Correct Parts Quality
Problems in Major Programs,” U.S. Government Accountability Office, GAO-11-404, June 24, 2014,
http://www.gao.gov/assets/330/320127.pdf
285
“DOD Supply Chain: Suspect Counterfeit Electronic Parts Can Be Found on Internet Purchasing
Platforms,” U.S. Government Accountability Office, GAO-12-375, February 2012,
http://gao.gov/assets/590/588736.pdf.
286
Ibid.
287
“Inquiry into Counterfeit Electronic Parts in the Department of Defense Supply Chain,” Senate
Committee on Armed Services, May 21, 2012, http://www.levin.senate.gov/download/?id=24b3f08d02a3-42d0-bc75-5f673f3a8c93.
288
Ibid., p. 6.
289
Paul Courson, “Report: Bogus U.S. Military Parts Traced to China,” CNN, November 7, 2011,
http://www.cnn.com/2011/11/07/us/u-s-military-bogus-parts/.
290
Kevin McCaney, “New Technology Looks Deep to Identify Counterfeit Microchips,” Defense
Systems, October 2, 2014, http://defensesystems.com/articles/2014/10/02/asom-counterfeit-microchipdetection.aspx.
291
Dean P. Vanek and Steven D. Tibbs, “Feature Comment: Proposed FAR Rule Looks To Expand
Reporting Of Nonconforming Items,” The Government Contractor, Information and Analysis on Legal
Aspects of Procurement, West, Vol. 56, No. 25, July 9, 2014,
http://www.gclgroup.net/uploads/3/1/4/3154926/proposed_far_rule_looks_to_expand_reporting_of_nonc
onforming_items-56_gc__215_july_9_2014.pdf.
292
Kevin Lewis, “The Fake And The Fatal: The Consequences Of Counterfeits,” The Park Place
Economist, Illinois Wesleyan University, Volume XVII, April 2009, p. 49,
https://www.iwu.edu/economics/PPE17/lewis.pdf.
293
Natalie Blazer, “Counterfeit Auto Parts Expose Manufacturers to Liability,” Product Liability Monitor,
October 11, 2011, http://product-liability.weil.com/uncategorized/counterfeit-auto-parts-exposemanufacturers-to-liability/.
294
Lynda Tran, “Safety Advisory: NHTSA Alerting Consumers to Dangers of Counterfeit Air Bags,”
National Highway Traffic Safety Administration, October 10, 2012,
http://www.nhtsa.gov/About+NHTSA/Press+Releases/2012/Safety+Advisory:+NHTSA+Alerting+Consu
mers+to+Dangers+of+Counterfeit+Air+Bags.
295
Ashlee Vance, “Chasing Pirates: Inside Microsoft’s War Room,” The New York Times, November 6,
2010, http://www.nytimes.com/2010/11/07/technology/07piracy.html?pagewanted=all&_r=0.
296
“How Long Does Copyright Protection Last?” U.S. Copyright Office, Library of Congress, 2014,
http://copyright.gov/help/faq/faq-duration.html#duration.
58
297
“Content Protection,” Entertainment Software Association, 2014,
http://www.theesa.com/policy/antipiracy.asp.
298
“The Surprising Risks of Counterfeit Software in Business,” White Paper, Microsoft Corporation,
2009, http://www.microsoft.com/en-us/piracy/knowthefacts/counterfeit.aspx.
299
“Executive Order 13103 – Computer Software Piracy,” September 30, 1998, Presidential Documents,
Federal Register, Vol. 63, No. 192, Monday, October 5, 1998, p. 53273,
https://www.federalregister.gov/articles/1998/10/05/98-26799/computer-software-piracy.
300
“VA Secretary Unveils Data Security Encryption Program,” U.S. Department of Veterans Affairs,
Office of Public and Intergovernmental Affairs, August 14, 2006,
http://www1.va.gov/opa/pressrel/pressrelease.cfm?id=1169.
301
“Review of Alleged Incomplete Installation of Encryption Software Licenses,” U.S. Department of
Veterans Affairs, Office of Inspector General, 12-01903-04, October 11, 2012,
http://www.va.gov/oig/pubs/VAOIG-12-01903-04.pdf.
302
Ibid.
303
“Desktop and Laptop Software License Management Is Not Being Adequately Performed,” Treasury
Inspector General for Tax Administration, Reference Number: 2013-20-025, June 25, 2013,
http://www.treasury.gov/tigta/auditreports/2013reports/201320025fr.html.
304
Ibid.
305
Ibid.
306
“Management’s Response to the Draft Report,” Department of the Treasury, Internal Revenue Service,
May 20, 2013, http://www.treasury.gov/tigta/auditreports/2013reports/201320025fr.html#mgtresp.
307
“SmartTrack: Software License Optimization from the Desktop to the Data Center,” Aspera,
http://aspera.com/en/tool/smarttrack/.
308
“IT Asset Management Software,” BMC Software, http://www.bmc.com/it-solutions/assetmanagement.html.
309
“Automated Software Reconciliation,” Eracent,
http://www.eracent.com/index.php?option=com_content&view=article&id=53.
310
“Software License Optimization,” Flexera Software,
http://www.flexerasoftware.com/enterprise/products/software-license-management/.
311
“SAM Case Studies: Success Stories,” Microsoft Corporation, Software Asset Management,
http://www.microsoft.com/sam/en/us/casestudies.aspx.
312
“Software Asset Management,” Snow Software, http://www.snowsoftware.com/int.
313
“Federal Software Licenses: Most Agencies Have Reported Planned Actions to Address Our Prior
Recommendations on Software License Management,” U.S. Government Accountability Office, GAO14-834R, September 23, 2014, http://www.gao.gov/products/GAO-14-835R.
314
H.R. 1232, Federal Information Technology Acquisition Reform Act, 113th Congress,
http://thomas.loc.gov/cgi-bin/bdquery/z?d113:h.r.01232.
315
H.R. 4435, Buck McKeon National Defense Authorization Act for Fiscal Year 2015, (Placed on
Senate Calendar, June 5, 2014), http://thomas.loc.gov/cgi-bin/query/D?c113:4:./temp/~c113IuwL11.
Conclusion
316
Alexander Hamilton, James Madison, John Jay, The Federalist Papers, Clinton Rossiter (ed.), p. 268,
New American Library, New York, New York, April 2003.
317
Magnus Brooke, ITV Director of Policy and Regulatory Affairs, in response to the Hargreaves Review
of 2011, Speech before the UK Culture, Media and Sport Committee’s Eighth Evidence Session, ICOMP,
March 12, 2013, http://www.i-comp.org/blog/2013/a-strong-ip-regime-is-an-engine-of-growth-not-abarrier-says-uk-broadcaster/.
318
“Intellectual Property and the U.S. Economy: Industries In Focus,” U.S. Department of Commerce
Economic and Statistics Administration.
59
319
Hassett and Shapiro, “What Ideas Are Worth: The Value Of Intellectual Capital And Intangible Assets
In The American Economy.”
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